Is it really any surprise that a religion which acknowledges the divine connection (if not actual divinity) of Jesus would be tolerant of a celebration of his birthday?
Islam is more tolerant, in a lot of ways, than Christianity. Oh, to be certain they've had their moments, and the fundies on both sides are crazier than a shit-house rat, but your average Muslim is going to be a lot nicer neighbor to have than your average Christian - and this is coming from someone who celebrates Yule.