Your step-daughter's reasonably young, if I remember correctly?
There's a recent thread in Frugal Parenting (I'm not 100% sure of the forum name, but it's along those lines) about ways to celebrate the holidays without spending money. Baking together, making homemade gifts for each other, curling up to read Christmas books or watch a Christmas movie as a family with mugs of hot chocolate, driving together at night to look at Christmas lights... And if you're in or near any reasonably-sized city, there should be all kinds of Christmas activities for kids (at parks, museums, stores, churches, the Y...) that are free or inexpensive. Forcing yourselves to do more of these things might help your step-daughter feel that Christmas is still something special at your house, even if you don't buy her the latest offerings by Apple.
We always start the holiday season with some sort of charity project - the giving tree at church, Operation Christmas Child or Toys for Tots... My older kids serve food at a homeless shelter with their grandparents. It sounds like it might be important for your step-daughter to put herself in the shoes of kids whose families can't shower them with gifts and start thinking about what ELSE makes the holidays special. (Of course, that light bulb will not go on over her head immediately! But, reinforced year after year with you guys, she'll eventually get a message it sounds like she may not hear, at her mother's.)
Plenty of Christmas books reinforce the idea that expensive presents shouldn't be the most important focus of the holiday - and some also skirt around the religious aspects, since it sounds like that's not a priority at your house.
>> In The Polar Express, the main character gets a genie-in-the-bottle moment, where he can have ANYTHING he wants from Santa and decides the thing he wants most is a bell from his sleigh, to commemorate that Santa's "real" and the whole exciting, cozy Christmas journey he had, going to see Santa. The movie (although I find it inexplicably annoying) expands quite a bit on this theme and contrasts a bratty, demanding kid (whose parents seem to buy him everything he wants, but whom Santa only finds worthy of underwear) and a poor kid whose parents can't afford to celebrate Christmas and who appreciates the one gift he gets from Santa, as well as the "gifts" of friendship and his whole North Pole/Christmas experience.
>> In The Christmas Miracle of Jonathan Toomey a frontier widow and her young son save all their money to pay the local woodcarver to re-make the tabletop nativity set her grandfather had carved, but which was lost in their move to this new town. That's their one and only Christmas "gift". The woodcarver lost his wife and child to some illness and is lonely and antisocial. But the kid begs to watch the carving - then to be taught how to do it. He must be quiet and patient, because the woodcarver is so grouchy. And the mom quietly and patiently knits in a corner, offering special home-cooked food while they work. By the time the nativity set is done, she has finished a scarf for the woodcarver - his only gift - and he has warmed up to them completely. It's implied that he and the widow will marry. It's really touching and shows how all that time together and each person going out of their way to do something special and thoughtful for the others is more important than the sparse gift-giving...without being preachy.
Decorating the house is also a great way to celebrate inexpensively. Making a gingerbread house, paper chains, strings of paper dolls, homemade ornaments, strings of popcorn-and-cranberries or pinecones you gathered during a wintry walk...are all excellent for fine-motor skills, spending time together AND making your home feel more festive and exciting, to a child. You certainly don't have to invest in matchy-matchy glass balls, ribbons and velvet stockings or Swarovski snowflakes, to be festive!
Don't be too quick to dismiss your step-daughter's feelings about Christmas as pure materialism. Although her excitement about the big gifts at her mom's may be the easiest thing to verbalize, I can assure you that in go-all-out-for-Christmas families, there is significant excitement, wonder and emotion for kids simply because the house is filled with festive lights, decorations, smells and music. Parents and grandparents make extra time to do special, cozy, holiday things with the kids. And - while I disagree with buying kids things for Christmas that the family really can't afford - there CAN be merit in the practice of saving special "wants" for Christmas or birthdays. It teaches kids delayed gratification and emphasizes how special that occasion is.
So - while your preferences in celebrating the holidays are perfectly valid - to your step-daughter, Christmas at your house may feel like just another day. You give her a few new things. But that's not a significant deviation from normal, since you occasionally buy her things she wants anyway. And the only change in your house is that a small tree has replaced the candlesticks as a centerpiece on your table? Some compromise might be nice. You guys could put yourselves out more, to decorate and do special activities with her (without waiting for her to come up with ideas); but you can still expect HER to come to grips with the fact that you're not spending $500 on presents.
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