When someone confuses the thought of Santa Claus with Santa Claus, and then thinks that because the thought of Santa Claus exists, that Santa Claus exists, it might be useful to him to point out his mistake. Anyway, it is a mistake, whether or not it is useful to point it out.
It is also quite useful to point out logical fallacies, as people are very prone to such poor thinking, and it often leads them to have false beliefs, which consequently leads them to do silly things that are not in their own best interests.
But I think your Santa example is a very good one. Many people believe in Santa or his equivalent, and they sometimes act stupidly as a result. Of course, preventing people from thinking poorly generally runs counter to business interests, as otherwise many companies would go out of business trying to sell the garbage that they sell.
And, it is a general error to think that because the thought, or a picture, or some other representation of X exists, that X exists. This mistake is regularly covered up by the use of the phrase, "X exists as Y" where Y is the representation of X, and not X.
If Santa has material OR mental reality, then he exists. The issue is not one of being, but identity.
The difference between Santa existing and the idea or concept of Santa existing is not a matter of dispute if you are a materialist and define existence solely in terms of matter and energy. But of course this eliminates the existence of other, purely conceptual, notions such as democracy or love or freedom or truth or peace or ...
If Santa has material OR mental reality, then he exists. The issue is not one of being, but identity. Is his existence contingent on a mind that conceives him, or is his existence independent and material. But it is usually critical to distinguish the identity correctly (when possible).
What would it mean for Santa to have mental reality? If that means the thought of Santa, or the idea of Santa, that is not Santa. It is the thought or idea of Santa. Why would the thought or idea of Santa be Santa? Would the thought or idea of the Eiffel Tower be the Eiffel Tower? Of course not. The Eiffel Tower is a structure in Paris. The thought or idea of the Eiffel Tower is not the Eiffel Tower. So why would the thought or idea of Santa be Santa?