For Christmas Day itself, Jerusalem and Bethlehem; just a short flight from most of Europe. Most of Europe is really cold over Christmas so we opted for two weeks in Israel and Jordan. Christmas Day in Jerusalem and New Years Eve and Day in Petra.
Other great places for Christmas would be Vienna (although I agree New Years is best) and Rome. Christmas markets in Germany leading up to Christmas are fantastic; I just don't know what is actually going on Christmas Day.