Hypothetically (since I'm not a parent), I'd want to be somebody my kids could trust to give them the no-BS answers. Absolutely prepare them for the fact that the world is full of those who will seek to mislead and brainwash them, but you don't have to start by doing it to them at home. When I was a kid (admittedly rather older than is under discussion here; I was around 9) my parents and I would explicitly go through the newspaper looking for propaganda that we could analyze for impact and for the bias or mistaken belief it intended us to have, and why. I'm pretty sure I could have handled it earlier; by age five I was fairly comfortable with the concept of fiction vs. non-fiction, and by six I'd already sorted the first part of Genesis into the first category...
This does run the risk of the kid picking up any biases that you have yourself, though, on account of "well, they never told me to be skeptical about that" but there's nothing wrong (and plenty right) with teaching them to be skeptical even of their parents' views... just don't do it by lying to them about easily verifiable facts.
You mean: "Just don't do it by lying to them about not easily verifiable facts" right?
Lying to your kids about certain classes of things is a great game, which, as others have pointed out, adults seem almost hard-wired to play. It's a great way to stimulate a child's inquisitive nature, in a safe and fun way. Adults will often tell their kids tall stories, or make up nonsense explanations for every day phenomenons, or play out fantasies as if they are real (Santa Claus falls in this latter category).
But for this game to work, the things you lie a...
Related: The Santa deception Is Santa real On the care of young rationalists
All of the other takes on this topic start from a point, when a child (usually 5-9 years old) asks "Is Santa real?" Nobody yet asked "how to raise my child Santa-free?" What to say, when a two-year-old, who just noticed that there is this character on TV asks "will he come to me, too?" A toddler may not yet understand the concept of lie, of pretending, of things not physically existing. How to tell her, what will happen, what to expect, how and why other children behave differently?
My three-year-old daughter discovered Santa last spring, which finally forced me to think: how to deal with it? Ignoring the thing worked for three years, but what now? I live in an extremely catholic country (Poland), so I cannot be completely blunt about it.
In the end I decided to call it "the fairy-tale of [Santa] Claus." For me it has a lot of advantages: this is a story that can be told, retold, reinvented and everybody knows it. In addition, since the name includes the phrase "the fairy-tale", it has just as much validity as the tale of the Red Riding Hood or any TV character that she likes.
I tested some of her beliefs about "Miko". I opened the box with books intended for gifts in front of her. When she wanted to read some of them, I explained that she cannot yet read her book, because she'll get it on Christmas Eve. She asked "is it from Miko?" and I replied that in some way it is, but I bought it. She didn't insist on reading it right now. A few days ago she helped me wrap some of the gifts. She commented that action "Miko brought these so we can wrap them and give them as gifts from Miko."
Malcolm told me, that he likes best the strategy, when you say that Santa Claus is a game that everyone plays. People pretend that there's a big guy in a suit who does the thing, and if you ever let down the pretense to your friends, you lose the game. I'm not entirely convinced by this strategy - it may be too complicated for a 2- or 3-year old (since my daughter didn't wrap her mind around the information that I bought the books).
What are other strategies that you use? Or which ones you don't like? Why?