I am not surprised distraction didn't work. It never worked with my mother when she was constantly demanding to go home - I used to want to scream when people suggested it, as if I was too thick to think of anything so simple.
What worked for me was becoming as inventive as possible in the fib department, absolutely anything I thought might keep her happy for the moment. Could you say e.g. your grandma has had to go away for a while (to see someone your mum would remember) ,but she knows your mum is there, it's ok and she'll see her soon? This sort of thing can sound very wrong at first, and some people can't bring themselves to do it, but if someone's short term memory is already very bad then they are not going to remember anything you say anyway. My mother never once remembered that I'd said much the same before.
Later she often asked to go and see her parents - I had to invent a whole new set of fibs for that - I'd give them a ring later and see when they'd like us to go, we wouldn't want to go and find them out, we'd go tomorrow, the roads were horribly busy today, my car was being serviced today, you name it.
I do hope you find a way to reassure and comfort your mum-I know how awful it is to see someone in such a state about something nobody on earth can give them.