If you're a repeat guest who knows the parks, you plan properly, and can keep your expectations in check, then I'd say that Christmas is a fine time to visit WDW.
I have been to WDW twice during the Christmas season. I've seen the holiday decorations and been to the Candlelight Processional at Epcot, Mickey's Very Merry Christmas Party, and the Spectacle of Lights at the Studios. These are wonderful, every one of them, and they are all well worth seeing. To make a Christmas week visit work, I suggest that you make reservations for at least one of these special events. Stay on top of it and make your reservations early to ensure that you are able to attend the event of your choice. Also, make sure that you make dining reservations for any meal that you want to eat at a table service restaurant. There will be almost no ability for the restaurants to seat walk-ins. To get an idea of what the meals will be like on Christmas Day, go to www.allearsnet.com. Click on the "search" button and type in Christmas. You will find sample menus from previous years. Things do change, but you will get a general feel for things here.
For park touring, make sure you arrive before park opening. Expect that by the time mid-morning rolls around, things will start to feel quite packed. Have your kids pick the top two or three rides they want to go on, do those first, and consider anything else gravy. As long as the kids aren't expecting to go on 15 rides (or if you're prepared to wait in some long lines), then you should be fine. Christmas could also be a great opportunity to experience some of the more "off the beaten path" parts of Disney: rent a bike, go for a horseback ride, explore the beautiful decorations at other resorts. Disney at Christmas can be great, it just takes more planning and stamina than at other times of the year.