I'll answer your questions directly, and then explain myself:

• Yes, we pretend that Santa visits our kids (8 and 6). I think the 8-year old might have it sussed, but I'm not sure.
• We take them to the mall to meet Santa, I think we've done letters before, we leave cookies (which are partially eaten the next morning), the whole thing.
• Whether I will lie directly depends on the question. See below for more discussion.
• I will continue the myth as long as it takes for them to find their way out of it.
• We also do the Easter Bunny and the Tooth Fairy
• My parents and my wife's parents also did these myths with us.
• When I found out they were fiction, it wasn't a big deal - I had mostly figured it out anyway. I did not mind.

The best commentary I've ever seen on this topic comes from Dale McGowan, author of Parenting Beyond Belief and its companion book, Raising Freethinkers.

He uses it mainly as a springboard to atheism, but it's really about critical thinking, and so it applies in many areas.

I'm pulling from his blog post (and book excerpt) called Santa Claus – The Ultimate Dry Run below, but you should visit the site to read the whole thing - I just didn't want to copy so much down here, but it makes a better narrative with all the pieces intact on his site.

I began to see the Santa paradigm as an unmissable opportunity – the ultimate dry run for a developing inquiring mind.

My boy was eight years old when he started in with the classic interrogation.

With questions of belief, you have three choices: feed the child a confirmation, feed the child a disconfirmation – or teach the child to fish.

I avoided both lying and setting myself up as a godlike authority, determined as I was to let him sort this one out himself. And when at last, at the age of nine..., he asked me point blank if Santa was real – I demurred, just a bit, one last time.

“What do you think?” I said.

“Well…I think all the moms and dads are Santa.” He smiled at me. “Am I right?”

I smiled back. It was the first time he’d asked me directly, and I told him he was right.

“So,” I asked, “how do you feel about that?”

He shrugged. “That’s fine. Actually, it’s good. The world kind of… I don’t know…makes sense again.”

That’s my boy. He wasn’t betrayed, he wasn’t angry, he wasn’t bereft of hope. He was relieved.

I plan to handle this the same way as Dale. If a child asks "Is Santa real?" that's not the time to spill the beans. They have not formulated their own answer yet. Let them ask deeper questions, like "What does he do at apartments with no chimneys?", and always put it back on the child, "What do you think?".

Notice that in Dale's tale, his son finally gave his own hypothesis for Santa. Once he has his own formulated idea, it's OK to answer. Before that, though, you're just handing down a pronouncement.

Some people are of the mindset that you should never lie to your kids, and would take issue with Dale's statement that "I avoided...lying", given that he's been lying all along.

But when you do that - when you never lie to your kids - when you always have the answers - you set your kids up to believe that authority figures always tell the truth. In this way, not only can Santa be used as a springboard to atheism, but to critical thinking in general.

Adults everywhere are making false claims from a position (or apparent position) of authority ("The doctor on TV said that the homeopathic pills work great!"). A child who simply gets all the facts from parents will not be as ready to question statements from other authorities.

Sorry for the long-winded answer. In a nutshell, yeah, we do Santa, and see no conflict between that and a skeptical/humanist worldview.

I would also agree - I think there is a simple psychology involved here, and it makes it perfectly alright to 'lie' or tell stories (all stories are lies, according to B.S. Johnson at any rate) to children, particularly if it encourages imaginative thought (although a prescribed fairy tale like Father Christmas is probably not ideal).

The psychological trick to 'lying', and in fact this applies to all lies I suppose, is to ensure there is no reciprocal loss associated; basically a child discovers that Santa doesn't exist and is told upon that discovery that they will no longer receive any Christmas presents, it would be a very different story. Punished by discovery, deluded by lies; sounds dramatic, but it amounts to that.

But that's not (usually, I hope) what happens, nor with the tooth fairy, as by the time a child is old enough to figure it out, they will have probably lost most of their milk teeth anyway. The other side would, and no surprises here, be telling a child about the existence of god/heaven/all that stuff, especially to avoid uncomfortable questions about where we come from. As a child my mother (who, to all intents and purposes is an atheist) comforted me through a rather severe crisis whereby I realised that I would probably be dead before I got to see flying cars...and she did it by telling me that when I die I could be assured of going to heaven where you can sit quite happily for all of eternity and look at any part of the world, past or future, in the company of anyone you liked. Of course, aged eleven it dawned on me that it was a pile of cobblers (a point of view to which my mother immediately concurred) and it stoked up an almighty disappointment that death wasn't going to be the ticket to the universe's greatest theme park!

So, briefly, telling stories and, to an extent, lying are fine as long as the child doesn't ultimately lose out in any meaningful way; only deluding a child is unfair and unhelpful.

Absolutely agree with Rob T.

Childhood (and indeed adulthood IMO) should embrace imagination, fantasy & storytelling.

A "sceptic" can still enjoy a great work of fiction.

I agree with what everyone else said. My children are older now and know there is no Santa but still pretend because it's just fun.

Same goes for the Easter bunny, tooth fairy, etc..although none of those seemed to stick nearly as well as Santa

I've gone into some of the psychology behind the 'Santa myth' on the podcast Token Skeptic, episode one. http://tokenskeptic.libsyn.com/index.php?post_id=563756