If i say there is a consequence to an action, then i follow through. DD has, much like your kids, had stuff donated to charity because she has been warned that it is going to happen, and I follow through. We haven't used Santa in that manner though - I'd rather have an immediate action/consequence situation than a threat of something like that. She has things like "clean the floor or the toys go to charity", "pack your dress ups away or they go to charity". I don't deliver it that bluntly though lol

ETA: I'm another that appreciates that DD is a pretty good kid - she has her moments (don't all kids?) but for the most part she's pretty good - so maybe i'm not at the end of my tether and grasping at straws like your SIL?