The focus of the issue around the greeting "Merry Christmas" vs "Happy holidays", in my mind, is often backwards. Some, very vocal, people seem feel entitled to only provide and receive a greeting that fits their religious tradition. Is that really rational or is it another facet of our "I'm entitled to..." (also voiced as "I have a right to...") culture? We have this strange belief in certain segments of our culture that seems to hold to the philosophy; if you're not with me you're against me.
Rather than focusing on what I like hear as a greeting, I prefer to consider the greeting recipient's situation. If I know a friend is a practicing Jew I say "happy Hanukkah" because that is what I wish for them. I know little of the holiday but that isn't necessary for me to wish for them that theirs is a happy one. My simple wish for them neither carries an implicit endorsement of their tradition nor implies that I care to learn more. If I know a friend is a practicing Christian I say "Merry Christmas". If a friend is practicing a religious tradition I am unfamiliar with, I ask for their preference of greetings (or I look it up). If I am unsure of someone's tradition I say "happy holidays". I think that is a pretty inclusive, albeit bland, greeting and is appropriate for most strangers in a context the provides no social clues. I'd probably go with "Merry Christmas" to someone I meet at a Christmas tree lot (but maybe not to the check out person).
This is, in my opinion, is the appropriate social norm in the pluralistic society we have built.
I confess, however, that I do get slightly annoyed when someone who knows me well and is aware that I am a practicing Catholic tells me "Happy holidays" because they are uncomfortable with the concept of Christmas. In my view that is simply being self-centered. It is, however, only a minor annoyance, like noting any other social faux pas (like a child that presumes to address me by my first name and is not corrected by a parent). It is, fortunately, a very rare occurrence and not worthy of much mind share.
