It sounds like you have already done the data entry in what would be the correct way in RM. Namely, give your granddaughter two sets of parents. One set is her biological parents and the other set is your wife and yourself. So far, so good, except that as Tom already pointed out RM's reporting capabilities are not going to meet your needs.
In ancestral narrative reports or wall charts or box charts or anything like that, RM is only going to show one set of parents for your granddaughter. Whether it's you and your wife or whether it's your granddaughter's biological parents depends on what you choose. RM's method of allowing you to choose is a little subtle and not so obvious. Namely, in things like RM's Pedigree View and RM's Family View, when a person has multiple sets of parents you can choose which parents are shown in the view. Whichever set of parents you have chosen most recently in those views is the set of parents that is shown in ancestral type reports. There is no way to specify a preferred set of parents which RM remembers irrespective of which set of parents is displayed in Pedigree View or Family View. And there is no type of dotted line way to show both sets of parents.
I have limited experience with this sort of situation in descendant narrative reports. Assuming RM works the same for you as for me, your granddaughter would be shown twice in descendant narrative reports, as the child of her biological parents and as the child of you and your wife. If your granddaughter married and/or had children, her spouse and/or children would be shown only once and not twice. I have not encountered any loops. I am not sure why you have encountered loops. I have not played around with this sort of situation using RM's descendant box charts or wall charts.
You may need to use a third party product for your reporting needs, or wait for RM8 to see see if RM8's reporting capabilities meet your needs.
Your situation with your granddaughter is a specific example or the more general question about whether software like RM and its competitors should be supporting genealogy or family history. A product that supported only genealogy would only support your granddaughter's biological parents. I'm firmly in the camp that suggests that our software should support both genealogy and family history and not just support genealogy. RM supports both but with an * for its support of family history. That's because RM's support of family history is much weaker than is its support of genealogy as exemplified by your problems in entering and reporting on your granddaughter with RM.
These sort of situations are not uncommon. I've mentioned before on these forums that my father had three sets of parents. First there were his biological parents. But his mother died a few days after he was born and he was raised for about three years by an aunt and uncle. At that point, my grandfather remarried and my father was henceforth raised by his father and his stepmother (my grandfather's second wife). More recently, I have a first cousin who was adopted from an adoption agency as an infant and who many decades later was able to find out who his biological mother was and to meet her. In the process, he found out what his birth name was. Of course, his legal name is still his adoptive name. It seems to me that these sort of situations are not addressed very well at all by most genealogy software. One of my pet peeves is the insistence upon a preferred name when a person has multiple names. It seems to me that the multiple names should be able to be co-equal and labeled - birth, adoptive, legal, etc. - without one of them having to be declared a preferred name or to act like a preferred name.
Good luck with finding a good solution for reporting on your granddaughter.