Kids are such great pretenders!
We have always told our kids that Santa is a game we play. It's just pretend, and Mom and Dad are the ones who really put the presents out on Christmas Eve. We still go through the ritual of putting out milk and cookies, but we remind them that it's all just pretend. They still believe!
I remember several years ago our youngest daughter (she was probably about 5) figured out how Santa could park his "giraffes" (just a little mixed-up there in the story) in the back of the house and come in through the back door since we didn't have a chimney at the time. We reminded her again that Santa is just pretend, but she kept talking about it anyway.
Just a day or two ago I had this conversation with the same daughter (now 9).
DD: Mom, is Santa coming to our house?
Me: Well, we'll pretend like he does.
DD: Oh, yeah. You're really Santa, right?
Me: Yep. Me and Daddy.
DD: Can we put out cookies and milk for Santa?
Me: You think Santa would like that?
DD: Yes. We always put out cookies and milk, and he always eats them.
DD: Can I put my teddy bear under the tree for Santa to see?
By this time I'm just cracking up. The child refuses to NOT believe!
Oh, well... they grow up much too fast.