I don't have any children to dress up as, but I would never dress up as Santa Claus. If I did have kids, I would probably tell them that Santa is a mythical man who gives out presents. They can still enjoy the story of Santa, much in the same way they enjoy fairytales.
No, we don't have somebody dress up as Santa. He still comes through the night down the chimney and leaves presents under our tree for the kids (though I think my kids will work it out this year because they've been asking a lot of questions). I do like to wear a Santa hat on Christmas day to hand out presents, but that's as far as I go.