How freely can I 'speak' here. You don't suppose we have readers THAT young, do you? ;)
I didn't feel like I handled 'the Santa talk' well with my 9 year old when she was back in first grade and I want to do better with my current first grader. I once dismissed the opinion of some devout relatives that the USA 'Santa culture' was harmful to our faith and taught kids to distrust their parents word on anything they can't verify physically. But I found it is sort of true!
My best approach idea so far is to sit down and explain the story of Saint Nicholas, who he was, how his faith shaped him and caused him to help the less fortunate. How people honored his example by continuing his practice of gift giving anonymously.
She already understands the concept of exaggeration and tall tale storytelling as we addressed it when her older sister did a report on Saint Patrick and the story of "Driving out the snakes from Ireland" came up. (You gotta love catholic schools, eh?) I'm thinking that might be the best way to explain the flying reindeer, north pole, elves and so forth. Those are add-ons that have nothing to do with Christmas itself or even Saint Nicholas.