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As you say, Santa's an icon, a symbol. The simple answer is that toddlers don't understand symbolism, just as they wouldn't understand that Uncle Jimmy blew his head off.
I don't think kids hang onto it any longer than you allow them. I never had to come out and tell mine the "truth"; they began having doubts at about 4 or 5, and by the time they go to school, they're questioning and figuring it out with their peers. When they asked the questions, I told them that Santa was in all of us. Corny, but they accepted that at first, until they asked me what that meant a year or so later.
Then again, we've always celebrated all the fun holidays; my children have enjoyed the traditions of both parents and are in the process of finding themselves and making their own choices.
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