Is it immoral to allow children to believe in Santa Claus?

This is not the entire answer, however, I'd like to give you a perspective that may inform the answer. I grew up in a Christian home, where Santa Clause was forbidden, whereas my wife grew up in a Christian home where Santa Clause was a celebrated and beloved part of the holiday.

When I read you question, I could almost here the voice of my mother speaking it. All of the reasons you gave were the reasons that they gave me for not believing. Beyond that (and implicit in your question I think), they also thought that if you were disillusioned of the fantasy of S.C. then you would be more easily disillusioned of your belief in God. Perhaps that was bit of what they experienced growing up, though their parents were not particularly religious.

My experience as a child was One of increasing apprehension and extreme burden carrying the HUGE weight of a terrible secret that I could not let any of my friends in on. I really cannot express the horror I felt, after carrying that burden for so long when inevitably my peers began to find out and started 'letting the cat out of the bag' to the other kids. I have vivid recollections to this day of Christmases in the 2nd and 3rd grade when this was happening.

It may be that not every kid is going to react that way, and I have no doubt it totally depends on the personality of individual kids. However, in my case, I believe it lead to a kind of resentment of parents having to carry around the burden of (what I began to think of, at the time, very young) as my parent's increasingly unfounded faith. When other kids got excited about Halloween candy and costume, I had to look forward to was a night with the lights outs, hearing the doorbell ring and hiding, whilst my mom wold sneak a peek out the window and bad mouthing the parents of any kids she happened to recognize. I spent Christmas hoping my parents would not catch me watching the S.C. history channel special when it aired on the TV, and tip toeing around the question, 'what is S.C. bringing you for Christmas?'. The answer by the way, was 'nothing, I don't believe in S.C.' when an adult ask me in front of my parents, to the considerable shock of the asker, the pride of my parents and the embarrassment of myself. And if another kid ask me at school, the answer was the same as any normal kid. Notice how the burden of my parents having to tell a lie, shifted to me (the child) having to lie? I doubt my parents wanted to field the calls from an upset teacher (or a mad parent) any more than I wanted to reveal the terrible secret.

Long story short, I realized in my mid teens that I did not believe in God, and only came to faith much later. How much did this aspect in my upbringing influence this sad part of my life? I couldn't say, probably not heavily, but certainly was part the entire package of life experiences that lead me down the wrong path.

My wife grew up in believing in S.C. until one day she figured it out, but kept up pretenses for the sake of her parents and younger brother. She never wavered in her faith, and is a extremely devoted Christian to this day.

So all of that doesn't really answer your question. What should the Christian response be here? Certainly, the will of God overrides whatever embarrassment or discomfort that you, or your kids might feel because of it.

Romans 12:2 - NIV Do not conform to the pattern of this world, but be transformed by the renewing of your mind. Then you will be able to test and approve what God's will is--his good, pleasing and perfect will.

I think most Christian ethicists would agree that, as you said, telling some something that is not the truth, for what ever reason, is still a lie, and therefor a sin. I believe that Augustine says that telling an untruth, even if you believe it to be the truth, is still a sin.

So I am genuinely conflicted. I have read Mark Driscoll's article here (http://marshill.com/2010/12/13/what-we-tell-our-kids-about-santa-pastor-mark-for-the-washington-post) where he managed to find some middle ground. It is worth a read for sure. He suggest redeeming SC, telling the child he is real, in a way, through the person of St. Nick, and downplaying the commercialism that is so endemic around the celebration of the birth of Christ. At the same time it allows the child to participate in Santa as part of Christmas celebration, but the parent is being truthful at the same time.