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There's no hoohah over enhancing the holidays with traditional fantasy stories. The problem comes when parents go to extreme lengths to continue the lie long after the children are old enough to be let in on the secret.
Make-believe only works as a developmental tool when the children know it's make-believe. Otherwise it confuses them. If you tell your child that she's a real, honest-to-goodness princess, and keep the story going for years on end, it will be crushing to her when she finally figures out she's just an average kid, and she can't afford her own stable of horses, and she can't have servants do all her chores. But if she knows she's a normal person and that it's a game to pretend to be a princess, she will enjoy it.
I personally think it's just as damaging to constantly remind the child that there is no Santa Claus and not allow them to relish the games. As long as they know it's all in fun, there's no harm.
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