Yah he has no way of avoiding the attack, but his fists roll should not be damaging himself any more he is not punching himself...
He is punching the other guy which damages him, then the grenade explodes which damages them both.
However weapon 4 was intended for a grenade that explodes in a lethal proximity with bonuses for placement when thrown.
I wouldn't feel bad about increasing the weapon rating for both of them, lying on a grenade would likely kill any normal mook straight up, soldiers with kevlar vests don't even stand a chance. I'd figure a respectable soldier on having endurance 4 and 4 health boxes, on top of that they'd have armor 2 for body armor. To fully take him out in one shot it'd be a 7 damage hit. So I'd say hit them both with weapon 7, him getting no defense roll but not taking any more from his fists roll.