While video conferencing with Phil's dad (Fred Willard), Claire discovers a cigarette burn on the couch and when none of the kids confess, Phil cancels Christmas. Alex convinces Luke to admit it was him and that the other two will follow suit in Spartacus fashion to save X-Mas. After Luke confesses, the other two backstab him, and he takes back his guilty plea, and Christmas is back off. Eventually Alex confesses and Phil rushes to get the Christmas tree back. Soon the family discovers it was actually light reflecting off an ornament that burned the couch and all is forgiven... and Phil apologizes by promising the family a trip to Italy.
Cameron and Mitchell take Lily to get her first picture with Santa and the mall. When it's their turn, the good Santa goes off, and some homeless Santa that looks nothing like him goes up. They complain and get him fired and run into the Santa in the parking lot. Overriden with guilt, when they find out he's going to spend Christmas in his car, they invite him to their place. They come close to admitting they got him fired, but it turns out Santa Scott knew and forgave them after how nice they were to him. When a the choir group that Cameron formed and was fired from shows up to sing, Cameron wants to turns the sprinklers on them, but Santa Scott convinces him to be nice in the holiday spirit. Cameron goes outside and when the new choir master insults him, Santa Scott knocks him out and takes off running. Classic.
At Grandpa Jay's house, Gloria and Manny attempt to infuse their Colombian traditions with Jay's very established Christmas ones. Apparently in Colombia, they play pranks on each other and scream "Inocente!" and celebrate with fireworks. Jay initially fights it, but eventually sneaks out, buys fireworks, and comes back to play a prank on them. Jay truly is the greatest man that ever lived. No wonder why he scored a hottie.