I still haven't completely settled on a setting/concept. I've had a few really interesting ideas, but I just couldn't figure out how to integrate good puzzles into them quickly enough. I might have an OK idea now, but I'm curious about how strongly everyone is following the Christmas theme. On a scale from 1 to 5, where 1 is "Ring", 5 is "The Santa Clause", and 3 is "Home Alone", where would you say that your idea falls? I think I'm looking at a 3 right now, but trying to think of a way to bump it up to a 3.5 or a 4.

I had the same problem initially. I had an idea but couldn't work out how to make it into a game. So I wrote down lists of Christmas things: Christmas places, Christmas icons, Christmas stories, Christmas movies and so on. I did a lot of research (thanks Google). After a while, things started to fall into place. I actually started with a map and populated it with characters and objects as puzzles started to suggest themselves.

In answer to your original question, I think it now rates as a 5.

The Christmas theme can be whatever you like. It's a Christmas jam, but it's not prescriptive as to how tenuous the  connection should be to Christmas itself. Ultimately the game will be judged as a game, so if you are struggling, go with an idea that somehow links to Christmas in one way, but you have full artistic license to do whatever you like beyond that.