I don't want to cause my kids any additional hurt on their first Christmas without her but I don't think I can just pretend like she's not there. Any ideas?
I would suggest having a talk with them soon about how they would like to remember their Grandma on Christmas. Acknowledge that everyone is going to be sad that she won't be with them this holiday, but focus on keeping her memory alive during Christmas. They might not come up with any ideas so you might want to have a few to offer: looking at some photographs of Grandma and them over Christmas past, making a special tree ornament or decoration that you display every year, making Grandma's special Christmas eve cookies with them and toasting her with milk glasses held high.
By keeping Grandma alive in the celebration of Christmas you show your kids that death cannot diminish their love for her and that as long as we give voice to the memory of our departed loved ones, they are alive in our hearts. There will be some sadness during this holiday but the richness of loving memories and the warmth of your family will carry the day.