The Simpson family is enjoying “Krusty’s Kristmas on Ice” (in an indoor ice rink), starring Elvis Stojko. The main act features a reindeer, a candy cane, and a snowman who are all fretting over a green monster named Grumple, who advances upon the other Christmas characters, threatening to steal their Holiday Cheer (Grumple references the "Grinch" from Dr. Seuss' book), the characters mistakenly stumble backward over a wooden basketball court setup crew led by The Sarcastic Middle-Aged Clerk. All the Christmas characters are enraged that their show is being cut short and they begin brawling with the Utah Jazz as they try to warm up for a basketball game. Marge and the kids decide to get up and leave, and Homer is spotted down on the ice grappling with the Grumple and demanding back the Holiday Cheer. The Grumple repeatedly returns throughout the episode, wanting to kill Homer.
On Christmas Eve, the Simpsons go to Costington’s department store where a sad Lisa sits on Santa’s lap and explains the one true present she wants is the Malibu Stacy Pony Beach Party Set, which is sold out everywhere. Santa Claus, who is really Gil Gunderson (this episode reveals his last name), pities Lisa and goes back to the stockroom and finds an extra play set he had seen earlier. An overjoyed Lisa thanks Gil as a cashier rings up the sale. As Marge and the kids exit the store, an angry Mr. Costington comes out of his office and scolds at Gil for selling the Malibu Stacy play set that he had set aside for his daughter. Then when Gil refuses to take the present away from Lisa, Mr. Costington fires him. Marge and the kids witness the scene and feeling sorry for Gil, Marge invites him over for Christmas Eve dinner.
After dinner at home, Gil and the rest of the Simpson family gather around the piano and sing songs. Finishing, Gil gets up to leave; however, Marge insists he stay the night, citing how late and cold it is outside. Gil accepts Marge’s offer. On Christmas morning, Gil retrieves items from his bus locker, assuming he had a permanent spot in 742 Evergreen Terrace. Indeed, Gil’s weak demeanor and lack of job allows Marge to let him move in, and Homer is too distracted by the Grumple's presence outside the home (where it rhymes about putting Homer's blood in his stew) to pay much notice to Gil.
Gil begins to ruin their holiday. However, Marge continually allows him to stay out of guilt, due to a childhood memory when Patty and Selma stuffed her in her own dollhouse when she refused to hide their cigarettes. Homer’s patience wears thin after Marge’s inability to say "no" causes Gil to walk in on Homer and Marge’s “snuggling” on Valentine’s Day, and bring his friends to sing and drink on St. Patrick's Day. After eleven months, Marge finally agrees to say no to Gil and kick him out, only to learn from Bart and Lisa that Gil got a job in Scottsdale, Arizona, packed up his things and left that morning.
Gil ends up becoming a very successful realtor in Scottsdale. Despite the fact that Gil has already left for good, Marge wishes to go there and finally get the pleasure of saying “no” to him. After Marge’s display of anger towards him and Gil’s cowering display of weakness, the other salespeople are amused by Gil's cowardice and Gil’s boss charges out of his office and fires Gil on the spot. Marge is horrified when she realizes that her pleasure of saying "no" just cost Gil another job. Feeling guilty, the Simpsons offer to buy a house in Scottsdale in order to allow Gil to keep his job.
Cut to a new home in a suburb of Scottsdale at Christmas time, the mailbox reads The Simpsons and a Jackpot Realty sold sign sits out front. Christmas carols can be heard playing inside the house. Inside on the piano, Gil leads the family in song. The episode ends with a family of Grumples arriving at the doorstep. Homer lets them in and Gil, the Simpsons and the Grumples continue happily singing their carols.