As I don't see Christmas as a Christian holiday regardless of its origins, I see Santa Claus as a good way to give it a mystique without implanting any particular religious dogma in their minds. It also is an excellent way to get them to behave!
I think it's nice to give kids something to look forward to. Becoming an adult, while it has its perks, has its downsides as well - you have to work, deal with death, pick up so many responsibilities, etc. Let the kids enjoy their youth, let them dream. Let them think a demigod takes time out of his day to deliver gifts to them, rather than it just being you.
On the flipside, the legend kind of encourages materialism. Poor families have it the best, as they never lose touch with the concepts of love and kindness on Christmas Day. They have the greatest gift of all - eachother.