More than any magical innocence or whatever it is you're supposed to get out of it as a child, I vividly remember a couple years of confusion as it began to dawn on me that some kind of deceit was happening but I couldn't figure out yet how it all worked. I don't remember the magic. I remember being worried. I remember being lied to. I remember how embarrassed I felt when I learned the truth.
The "children need magic and wonder in their lives" argument is bullshit. Children find the whole world magical. Seems to me that playing an elaborate practical joke on them at such a young age might actually corrode their sense of real wonder and real mystery.
"You better be good or Santa won't come." Don't you think a great percentage of December behavior problems are actually caused by the manic anticipation of Santa Claus and piles of toys? The ability to blackmail your kids into good behavior for a few weeks (and, really, does it work?) is not a benefit, it's just a desperate effort to break even.
Santa Claus is like circumcision. "Everybody else does it, and we don't want our kid to feel out of place." It's just another thing that we inflict on children because nobody wants to be the first one not to.