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So I've decided to re-read the series and I've just started book 1 again.
After reading part way through, I still think that Lily and Petunia's parents are muggles.
On page 61 in The Philosopher's Stone Hagrid says to Harry, "...some o' the best I ever saw were the only ones with maic in 'em in a long line o' Muggles - look at yer mum! Look at what she had fer a sister!"
Now while he doesn't refer to Lily's parents, he does make reference to Petunia being a Muggle, which leads me to believe that her parents were Muggles.
Also, in the book Harry is trying on his robes for Hogwarts and he has a conversation with a boy. This boy is most likely Draco Malfoy, although it doesn't mention is name in this chapter (Diagon Alley), but this boy says to Harry about Muggles, "Some of them have never even heard of Hogwarts until they get their letter..." (pg. 61, Harry Potter and the Philosopher's Stone )
I'm thinking Hermione and her family received some sort of explaination about Hogwarts and the wizarding world when she got her letter. That's how they know.
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