All perfect praise be to Allah, The Lord of the Worlds. I testify that there is none worthy of worship except Allah, and that Muhammad is His slave and Messenger.
Our answer to your question will be as follows:
Firstly, it seems that your son is under the influence of some illusions resulting in a defect in the way he thinks; otherwise, a name that is preceded by the great name "Muhammad" is a reason for optimism and not pessimism. It is a name that is derived from praise, which is one of the distinct Attributes of Allah, and thus He gave this name to His Prophet as a way of glorifying Him.
Secondly, pessimism is inherited from the Pre-Islamic Era of Ignorance, and it is by having trust in Allah and relying on Him that one can repel this.
Ibn Mas’ood narrated that the Prophet said: “Bad omen is a polytheistic deed and every one of us gets these thoughts but Allah dispels it by means of relying upon Him.” [Ahmad, Abu Daawood and Ibn Maajah]
Thirdly, if your son has seen someone named by this name who was not successful in his life, then this is not a general rule. There is no connection between this name and the fact that the one who is named with it is unsuccessful; if that happens.
Fourthly, fortunetellers are but liars. If they say the truth sometimes, they lie many other times. If we presume that the soothsayer is truthful about what he had informed you regarding your grandfather, this does not necessary mean that it has an effect on the child. In Islam, it is impermissible to merely go to the soothsayers and ask them, let alone believe what they say. The Prophet said: "Whoever goes to a fortuneteller and asks him about something, his prayer will not be not accepted for forty nights." [Muslim] Another narration reads: "Whoever goes to a soothsayer and believes what he says, he has indeed disbelieved in that which was revealed to Muhammad.” [Ibn Maajah]
Fifthly: If you predominantly think that he is possessed by jinn, then you should be keen to perform Ruqyah on him. It is better for a Muslim to perform Ruqyah on himself if he knows how to do so, as one will be more sincere in performing it (as opposed to others performing it on him). Nevertheless, if there is a need for a righteous Muslim to perform Ruqyah on him, then there is nothing wrong with that. For more benefit on Ruqyah, please refer to Fataawa 88660 and 82918.
Sixthly, he does not have to change his name, but if he wants to change it, then there is no harm in doing so, Allah willing. However, one should be careful that people do not lose their rights because of changing the name.
Allah knows best.