Though I believe that parents have every right to raise their children with whatever beliefs and traditions they find most appropriate, I do feel a little sad for the kids that are that young and are being asked to understand on that sort of level that Santa isn't real and that they are excluded from things that they are probably seeing other kids their age being involved in because their parents don't want to foster a lie. I don't see "believing" in Santa as a lie, per se; I see it as more of engendering a spirit of wonder and allowing children (of all ages--big kids too! like me!) to celebrate in the season of magic and possibility. There's so much harsh reality in the world... why embrace that? I'm not saying be unrealistic, but enjoy the whimsy and fun and let children have the imagination and beauty.
hehe, I probably sound like some weirdo hippie, but I am just saying that I am so grateful for my childhood memories of Christmas, and all the magic and anticipation and wonder that came with that time of year. Kids grow up so fast and learn all the ugly truth in the world... I don't think "lying" about Santa is unhealthy or shows a proclivity for lies about other things. I guess I would be sad for the kids in this situation if she is so militant on her views that they are completely stripped of the opportunity to enjoy the world of imagination that kids are so natural with. That, and if those kids are either a) witnessing the Santa fun happening for other kids their age and feeling left out or robbed in some way (which they could potentially hold against their parents when they are older... i.e. mom and dad didn't let us have santa! we didn't have a childhood!) and feel jealous or hurt by it, or b) they are not savvy enough to realize that it's not a good idea to spoil the fun for other kids and perhaps are repeating the things their mom says about Santa to them, thereby making other kids feel bad or ruin their family traditions, then I think that the kids who are not having Santa deserve a fair and honest talk about what is going on. But I think it's hard for kids 4-5 to understand the whole "we don't believe in Santa, but other people do, so please don't spoil it for them." That begs the question for that young mind to ask... "well, if Billy believes in Santa, but he's not real... Then Billy is silly! or, if there's a Santa for other kids, why isn't there one for me?"
Wow, this post got long! so sorry! But as far as the woman's behavior, I don't believe she acted appropriately, regardless of what she may believe. Snapping at a stranger--never nice. Especially in front of her children... that's just setting a bad example. I think she could have used the situation as a further learning experience for her kids to reinforce their beliefs, like explaining in a more friendly manner that no, they didn't go visit Santa, that their family doesn't follow that tradition.