Pensioner put up for adoption

London, May 1 (ANI): A 72-year-old granny and her own grandson are set to have a baby, according to reports.
Pearl Carter, from Indiana, is reportedly having an incestuous affair with her 26-year-old grandchild Phil Bailey, reports The Sun.
And she's now using her pension to pay 54,000 dollars to a surrogate mother so they can have a child, say reports in New Idea magazine in New Zealand.
Pearl said: "I'm not interested in anyone else's opinion. I am in love with Phil and he's in love with me. Soon I'll be holding my son or daughter in my arms and Phil will be the proud dad."
Phil is the son of Pearl's daughter Lynette Bailey - who the pensioner put up for adoption when she was just 18, the magazine reported. When Lynette died, Phil tracked down his long lost gran and they started their relationship.
Pearl told New Idea: "From the first moment that I saw him, I knew we would never have a grandmother-grandson relationship. For the first time in years I felt sexually alive."
Pearl said: "I called Phil into my bedroom, sat him on the bed, and then I leant over and kissed him. "I expected rejection but instead he kissed me back."

Please explain to me the emboldened parts. Also I wonder whom the "she" refers to, pearl's daughter or pearl herself.

Source : http://in.news.yahoo.com/139/20100501/882/twl-granny-72-having-a-baby-with-her-gra.html