I will third (or fourth) Ms. Jo's suggestions. We really enjoyed the market in Esslingen. We hit it on Dec 6 which is St Nicholas day and it was fun to see St Nick walking through the town handing out oranges. The market had a ton of things for the kids to do.
We also really enjoyed the market in Stuttgart. All the roofs of the stalls are different. I remember there being rides for the kids as well. We went to the Finnish market too. Which had a big tent that you could sit in and curl up in reindeer pelts. There was a Finnish style Santa walking around as well.
The Mercedes Museum is one of the best museums I have ever been too, and I am not a huge car person.
We some of the markets around Munich as well. The one at the Residence seemed more kid focused, but it was one of the smaller ones. The windows of the big department stores are a wonder for kids of all ages. The big market in the Marien platz is more for shopping and eating, I don't remember seeing much for kids, but the eating...oh the eating...There is also a small middle ages market that is near the Residence that was fun, but not as fun as the one in Esslingen.
We also did the market in Nuremberg, there is a kids market there as well. We did it on a Wednesday during the day and it wasn't terribly crowded. They also have an international market there, where the sister cities of Nuremberg have stalls set up. That was fun to see.
Not too far out side of Salzburg is the Silent Night Church, which is on my list to visit this summer, so I will have more info after we get back
Where ever you do decide to go, Europe at this time of the year is truly magical!