Yes, it is true that this “Most Christian of Holidays” is Pagan in its origins and most of its traditions. Although the historical record is spotty, what is known is the ancient Pagan Romans celebrated a Winter Solstice festival called “Saturnalia” that honored the God Saturn, who was the God of the Harvest. This festival lasted about a week, from December 17th to the 23rd and was intended to please the God Saturn during the coldest, darkest time of the year in hopes that he would give the Romans a good harvest the next year. So the celebration included exchanging gifts, decorating with evergreens (seen as having magical properties by Pagans because they stayed green in winter when everything else turned brown – the evergreen tree, coming later from Pagan Germanic tribes, is also for this same Pagan nature-worship reason), temporarily freeing slaves (including switching roles in which the Roman masters would wait on their slaves for a day), having a large feast, and so on.
And then later on, the Romans, who were a very pious and superstitious people and hence adopted new Gods rather easily, adopted a new religion from the East called “Mithraism”. This religion centered on worship of the God Mithras, called the God of the Sun, and – this is where it gets interesting – Mithras’ birthday was celebrated on December 25th (aka, the Winter Solstice on the Julian calendar), when the Sun God Mithras was born to a virgin, as Sol Invictus (“The Unconquered Sun”) or, more properly, the Festival of the Birth of the Unconquered Sun. Once again, the historical records are spotty, but it seems that the leadership of ancient Rome, particularly the Emperors, adopted this religion enthusiastically. Although somewhat disputed, it reportedly was declared the State Religion of the Roman Empire over a century before Christianity was declared the State Religion (by Emperor Theodosius I, not Emperor Constantine as is commonly thought, who legalized Christianity).
As for how these Pagan traditions became associated with Christianity, there’s no record of exactly when this happened or how and why it occurred. But it is known that before roughly around the mid-300s, there was no mention of a celebration of Jesus’ birthday in any Christian calendars of the time, but that sometime afterwards, December 25th had mysteriously appeared on calendars as the date of the celebration of this event. The Roman Empire, despite being ruled by Christian Emperors at this time, was still mostly Pagan. So my theory is that a rather pragmatic Roman Emperor decided to bring the Christian and Pagan traditions together by combining the new religion with aspects of the old, and hence had issued a decree declaring that December 25th was Jesus’ birthday. I seriously doubt it was Emperor Theodosius I who did this, because he was a Christian zealot and responsible for suppressing and destroying a great deal of ancient Roman Paganism (most likely including, IMO, the destruction of the Great Library at Alexandria) so he was very unlikely to want to adopt Pagan festivals, and he became Emperor in 379 BCE. Therefore, it is my educated guess that it was one of the Emperors in the few decades before this year that established what we now call “Christmas” based at the time of the popular Pagan festivals. And then, following Theodosius I and other later violent suppressions, Paganism basically died out in the Roman Empire – but the traditions of its main festival survives to this day in the most “Christian” of holidays. And any “Christian” explanation for the holiday that you may hear or have heard – all of those are later inventions to help give a Christian veneer to these Pagan traditions.
(article) Io, Saturnalia! Or, the real "Reason for the Season":
http://altreligion.about.com/library/we ... 21305a.htm
The History Channel's "Christmas Unwrapped: The History of Christmas" (look for it - watching it should be an annual tradition):
http://www.history.com/shows.do?episode ... ion=detail