We raised four kids. At no time during their childhood did we ever tell them that Santa Claus was real. We didn't go so far as to ban him from wrapping paper or candy wrappers, but if our kids ever believed in Santa, it was not because we told them he was legit. When we went to the mall and my kids saw other children getting candy and coloring books from Santa, I would allow them to go and see him if they wanted but they knew he was just a man in a suit. They always knew that Santa is what those without Christ did to have a reason to celebrate Christmas.
We decided early on that we would never lie to our children. Every time you lie to your children, you plant a seed and eventually that lie will come to the light. Ultimately they will know that there is no Santa, Tooth Fairy, Easter Bunny or Leprechans and they will remember that Mom and Dad were the ones who sold them that bill of goods. The fact that it's all in good fun does not change that it was a lie and one that parents worked very effectively to perpetuate. The result is that there is the thought that Mom and Dad didn't always tell the truth in the back of their minds which will give them reason to not trust what parents say about other things that are important.
Beyond that, the Christmas story is a wonderful story! Not only is it a story, it is the truth! There is enough magic in the supernatural events of Christmas to more than rival the man in the red suit. Santa is a poor substitute for God.
Jesus IS the reason that we have Christmas at all! Without Christ there would be no Christmas as we know it. Why not enthrall your kids with the redemption story, with the miracle of the incarnation, with a knowledge that God saw that we were bad, very bad and loved us anyway by giving us the greatest gift that one could ever receive? Now that is miraculous! Tell them that God is not up in His "North Pole", but He is with us and in us everyday not just watching what we do, but helping us by making us good and aiding us in doing good. In fact, this was such an incredible event that even the angels of heaven were intrigued and still wonder at it.
I remember one year my kids did something very bad. They made a huge mess that literally took weeks to completely clean up. When they saw my shocked face, they knew it was hammer time. It was 2 weeks before Christmas. One of them said, "are we still going to get something for Christmas?" It was then that the Lord gave me a golden opportunity to share with them what Christmas is all about when I said to them, "of course, because Christmas is all about God giving us a gift that we don't deserve. We were bad and sinned against Him, but he sent us the most wonderful gift in His Son. So yes, we will be having Christmas and giving gifts this year because God gave when we deserved punishment."
My kids were not scarred by not celebrating holidays the world's way. They still got money for their teeth. When I took them out of school during Halloween parties, we took rakes and went to the park and made huge piles of leaves and jumped in them. The darkness of the house during trick of treat was the perfect platform for playing games by candlelight (what kid doesn't like fire?) and chasing each other in a robust game of flashlight tag. Easter, renamed Ressurection Sunday always included a gift of some kind and a basket of candy to share. We even hid eggs for them to find but they always knew the significance of the day. It was never confused with the world's interpretations or fabrications.
We never made a big deal about it, making the worldly ways of celebrating seem evil. We just explained to our children that celebrations should have a reason behind them. That's what makes them a celebration. So we stuck to American and Christian holidays because that's what we are, therefore that's what gives us a reason to celebrate. They didn't suffer by not hearing all the myths and stories that surround the holidays because they got to hear the greatest story ever told and that story is truly miraculous!