I am a parent of four, all grown now, and I think Stile has a good grip on the right answers. But it occurs to me, what with a granddaughter trying to bribe the Tooth Fairy to leave "lots of money" for a lousy incisor, where does a daddy or mommy draw the line? When my kids were small I promoted their belief in Santa Claus, the Tooth Fairy, and the Easter Bunny, and at least did nothing to discourage their belief in God. (I was either a theist or an atheist in denial of the fact then). We went to church and they went to Sunday School, though we never had Deep Religious Discussions at home.
My kids all figured out that Santa wasn't real from sources other than parents, and at least two of them figured out the same for gods. What I think I'm trying to convey here is that, even as a parent of pre-schoolers, I was a little ambivalent about telling them complete fictions about SC, tTF, and tEB. It didn't harm them to believe in those, though. It did harm my younger son to believe in Christianity, though - he pretty much lost what could have been two years of education by getting immersed in a Southern Baptist cult-like church. And I think that's where the difference lies - our culture expects you to give up on Santa by the age of eight or before, but huge portions of our society will encourage religion clear up to our deathbeds. And an awful lot of the religion being pushed really does enslave its followers.
"The wretched world lies now under the tyranny of foolishness; things are believed by Christians of such absurdity as no one ever could aforetime induce the heathen to believe." - Agobard of Lyons,
ca. 830 AD