While I understand that a teacher cannot grade what a teacher cannot read, I do not understand why they aren't compensating for that by testing orally. Yes they should be providing OT for him, but it's not a problem that can be fixed overnight either. It could take a while before his writing is legible. In the mean time, they need to work around it. If he had 2 broken arms, they wouldn't expect him to write things down. It's rediculous of his teacher to make that statement given the circumstances.
My son was on the homebound program after a major spine surgery. The teacher who was sent out twice a week was very helpful and understanding. There was nothing wrong with Jordan's hands, but there were days when just sitting up was too much for him. Those days, the teacher and I would quiz him orally. She or I would read his worksheets or assignments to him, and he would tell her/me what his answers were. We wrote for him from time to time.
You must be your grandchild's advocate. Talk to the teacher, the principal, and whomever else you must talk to in order to get this straightened out. Also, do whatever you can to continue the OT. Take him wherever he needs to go to get it, or learn to do it at home. There should not be an interruption in therapy. It will only hurt him.
Let us know what happens. I'm glad your grandchild has you on his side. So many kids get left behind because of minor things that could have been helped. So many kids get discouraged, and quit trying because of teachers who don't see the big picture. He may not ever have perfect penmanship, but he can still have a great education!
Stacey