aclee, I hear yah!
I think what your sister did was indeed totally appropriate given the circumstances and for a child of that age I would have said the same thing.
There is no lie in telling children the spirit of the season is at work, that miracles can happen during this time...even if it's a small miriacle in the grand scheme of things. Like mommy somehow found the doll they wanted that was sold out everywhere, it's a miracle to that little one and probably to the mommy who thought she'd have to explain why the dolly couldn't make Christmas Day. Let kids have some hope, magic and innocence while they still can! I wish, truly honestly really with all of my heart WISH, more adults had that spirit of wonder still in them. Santa Claus isn't just a funny characture of American culture, there is more behind it if you're open to Saints and all. There's no lie in the roots of the man and there's certainly no lie in the season celebrating Christ's birth.
