Our daughter went through this. When she found out the baby could not live she went thru several stages of grief. One was to ask the doctor to induce the baby at the point when it had the best chance of living. She declared that after weeks of almost continual crying this baby would have only love, singing and NO tears when he was born.
Knowing her and her need to give all she could for this baby I took her out to find the most beautiful baptismal blanket we could find (there was no time to make a quilt) and we found a premie outfit (which was used to dress him for burial) and several small simple blankets to hold him in if he should be born alive. He was, lived an hour and was beautiful. His daddy actually built a beautiful small coffin with a cabinet-maker cousin's help as his gift to his son.
Later when she realized she had a number of trinkets she wanted to keep (as well as a stack of pictures) we bought her a small leather round topped chest (about 1'long x 8"wide x 10" tall).
This was all 12 years ago. When her 10 year old daughter started asking questions about her brother our daughter decided she was old enough to see the pictures, but the tears started coming, "she was crying in big gulps" and they closed the box and said "later".
Bottom line - This is not a person who wanted to have a daily reminder (different people deal with grief in different ways). When we had the coffin size from her husband we mocked up a cardboard and put in it things she wanted to give this baby and it included: a quilt a close college friend had made for the older boy to represent the circle of close friends from those days (the friend replaced it with another quilt almost immediately), a tiny glass candle holder from Finland that was a gift from a girlfriend with whom she spent 3 months in Europe, a small necklace cross which had been her gm's (who had died recently), etc., etc.
I think a small quilt reflecting any religious beliefs would be good (nothing "cute" -- this isn't a "cute" time!). If they use it as a buriel quilt, fine, if they keep it, fine. A home-made frame (cross-stitched?), or a frame quilted over, perhaps with the name on it would be nice, whether it ends up in a small chest, or is kept out in view. For our daughter these things stayed with the baby - her way of giving all she could. Any gift given will be clearly an act of love, but even so, tell the gm (or someone close to the mother) that your gift can be used in any way the parents want.
The headstone could be a wonderful donation from both family and close friends. Our daughter took a very large piece of petrified wood from our porch and used it as a headstone (it is in a small country church cemetary). She means to have a headstone put in, but it's been 12 years...
Anything you do for her will be appreciated, perhaps not now, but when the tears slow. For me, and for our daughter, something hand made, like a quilt, is the perfect expression of caring.
Sorry this got so long winded. I've cried almost every word of it.