First, thanks for this thread, Alex. While there was a little nastiness along the way, I think most of the discussion has been positive and enlightening.

Like others who have posted, I think that when kids ask you a direct question, they deserve a direct answer. My youngest (of three) is still a "believer," but is fast approaching the time when he'll start to question the myth. He'll let me know when he's ready. Until he's ready, I won't tell him, but I also won't go to any elaborate measures to prop up the myth. When it's time, this pleasant little story will die. I don't think I'd be doing my child any favors by trying to keep the myth alive once its time has come.

With my two oldest, I tried to cushion the blow by bringing them in on the game, appealing to their better natures not to spoil things for their younger siblings and friends. They responded well; they recognized that they had crossed a threshold of sorts, and now had a responsibility to maintain the magic for the younger ones. A few conspiratorial winks were exchanged, and the magic went on, for all of us.

Now as far as God is concerned, I consider that to be dependent upon one's definition. When my kids ask me that one, I talk about the various definitions of God, and explain that each of us gets to make up his own mind about that. As long as the vocabulary is age-appropriate, the kids seem to understand this concept just fine -- they're always smarter than we expect them to be.