Addendum (5/22/12). A friend just sent me this by e-mail (m.t.):
"Apropos your associations with Gnadenbrot: I had exactly the same and a vague memory of the origin: Grimm Brothers, Fairy Tales, no. 48, "Old Sultan," which starts like this:
A farmer had a faithful dog called Sultan, who had grown old and lost all his teeth so that he could no longer hold anything fast. One day the farmer was standing with his wife before the front door and said, "Tomorrow I'll shoot Old Sultan, he is no longer of any use." His wife, who felt pity for the faithful animal, answered, "Because he has served us for so many years and faithfully stood by us, we might well give him his keep [Gnadenbrot in the original!]." "Nonsense!" said the man. "You are not right in your head. He has not a tooth left in his mouth, and not a thief will be afraid of him; now he may be off. If he has served us, he has had good feeding for it." ...As we know, it all ends well."
For the Grimm quote, I modified a translation of 1884 by M. Taylor. I, too, could not think of a way to render Gnadenbrot more faithfully in English without sounding awkward. Anyway, there is a good chance that this story also is the source for my association of Gnadenbrot with an old watch dog because courtesy of my grandfather, I grew up with the Grimm Brothers.