God in the Pledge is a different story, in that you have a captive audience forced to speak the words. Although I haven't kept up on that one, so I'm not sure if students can still be forced to say it if they don't want to. In any case, again, context matters. A plastic baby Jesus isn't going to jump out and force you to convert, especially not when it's simply a piece of a larger display of holiday consumerism. Some balance is always necessary.
Students can't be forced to say the pledge with or without "God" in it, but it still happens. Frankly, I think the whole saying the pledge in school thing is a bit freaky with or without mention of God. Blind, rote, unthinking pledges of nationalism and the use of repetition to drive home the point are just a bit too 1930's Germany for my taste.
But I do think the addition of "under God" into the pledge was the wrong move and does make it a mix of church of state. It also cheapens the sentiment. There's very few kids who are saying that pledge when told to in school and really thinking about it while they say it. To me, it's a form of using God's name in vain.