Is the toothfairy real?

Mythical Characters have always been a struggle for me. On one hand I feel like I am lying to my children, leading them away from Truth and morals that are weaved into my soul.  On the other hand, I don't want to steal away the innocents and magic of their childhood. There are too many other things in this world that will do that for me.

So far, we have taken the side to keep mythical characters, but not build them up...

We have kept Santa, but downplay his gifts and build up Jesus' birthday. 
We have kept Easter baskets on Easter Sunday, but side stepped actually verbalizing who supposedly brought the baskets.
  

And now, William has his 4th loose tooth, and we are about to face the question again.... "Is the toothfairy real? "

Your probably wondering why I'm just now dealing with this question, and how I have gotten by the last three teeth with out having to answer it? Well it went something like this...

Tooth #1, William didn't really know the "tradition" is to put the tooth under your pillow and get $$ back, so we didn't really say anything.  Of course, the instant one person saw that he has recently lost a tooth they asked the question I had feared, "What did the toothfairy bring you?".  I cringed as the words came out of her mouth, and William turned around and shot me a look of inquiry. He instantly knew he had missed out on something, he just wasn't sure what.  We moved on through the store and by the time we got home, he had forgotten all about it.

Tooth #2, was lost during Christmas Vacation, and he literally lost it... It was such a non-issue to him, so we let that go by also. By the way, we never found that tooth. I'm sure it's floating around my parents house somewhere.

Tooth #3, was pulled one afternoon, a brief question about the alleged toothfairy was brought up, to which I responded, "I don't know what do you think?" He walked off to think about it, and never got back to me. We ended up leaving the tooth on the counter for 2-3 days, had a quick Science lesson on types of teeth, and... that's about it!

I have completely dodged the bullet!! But I know my time is coming.

Tooth #4, it is hanging on by a thread. And I know any day now it is going to fall out and I will again be faced with the question, "Is the toothfairy real?" 

We have decisions to make and quick!! We have a few ideas on how we would like to handle this in our family, but I'm curious to see what you think!

 If I call out one mythical character, does it mean an automatic out for all of them? 
Is it really even that big of a deal?

Do you follow traditions and let the magic live on? 
Do you flat out say it's not real and not participate in the myth?
 Do you tell your kids it's not real, but it is fun and do it anyways?  

How do you handle Mythical Characters with your kids, and Why?