Lets look at a few different characters that society accepts, weather true or not: the all important Santa Clause, The Easter Bunny, Tinkerbelle, Wizards (harry potter), Vampires (twilight), Dragon Tales, Power Rangers, The Tooth Fairy...
All of these characters are widely known. Many of them are taught to young children to be "Real". Many parents sneak their christmas presents under the tree to pretend that Santa Clause did it. Same with the Easter Bunny and the Tooth Fairy. Is it wrong to tell your children that these characters are real? Is it wrong to LIE to them?
Some other characters, many people have an issue with, Harry Potter and Twilight... many people won't let their kids watch the movies, or even boycott the books because they promote magic... blah blah blah...
And some make believe characters don't even get discussed, they just get watched on TV without even an explanation. I mean, are monsters real? Sesame Street seems to think so. Can you "wish" yourself into a distant land where dragons exist, or have visions of the future?
How do you get across to your children that some things are real, and others aren't? Is it ok for you to tell your child that Santa Clause is real, but Vampires don't. When is it ok to let them watch the Little Mermaid but not to let them watch Harry Potter?
Wouldn't it be much simpler to tell your child that Santa is not a real character, but is a fun make believe character that is used to represent the Christmas Spirit. Explain who the real Saint Nicholas was. Tell them that the Easter Bunny is just a fun way of bringing in Spring. That Harry Potter is just a made up character that is fun to make believe. That magic is just a fantastic idea that is fun and entertaining to pretend.
You can't tell a child that they are not allowed to have a tea party because the tea in the pot is pretend. that they are not allowed to play House because it is wrong to pretend that you are an adult who is married with children. That they can not pretend they are a Power Ranger because real people don't transform into robots (or whatever that show is about...). You let kids be kids. As long as they know the difference between reality and fantasy, what is the harm in a little fun? After all, what would we accomplish if we had no imagination?
Now, if your kid starts shooting their pretend wand at other kids and saying "Obliterate" or shooting their pretend gun at someone saying "You're Dead!" then, I'd suggest a change in entertainment and an education on playing nice. But that is a whole other blog post that I don't wish to get into at this moment.