I must say something really unoriginal: Lily Rabe was phenomenal. In that scene where Cromwell's character gave hers the earrings, she totally stole the show. I hope the devil will reside in Mary Eunice till the end of the season, it'd be a pity to lose this character earlier.
And then Ian McShane was also great, just as expected. Santa Claus will never be the same for me.
Back to the story.
There's another flashback to 1962 when a psychopath, Lee Emerson, with complicated feelings about Christmas shoots down one careless Santa Claus. The next scene he's already in somebody's home, wearing Santa's costume with blood stains фтв talking to the little girl. She's asking him all these questions like where his beard is and why he didn't come through the chimney like the real Santa. Tired from answering all that, he asks the girl to wake her parents up, whom he then ties up with Christmas lights and kills. We later learn he murdered five (!) families that night, and that was all because around Christmas time he was raped by five (!) jailors. Now I doubt that the families he killed were those of the rapists, these murders seemed more like a symbolic payback for his ruined Xmas spirit.
Anyway, in 1964, Mary Eunice plans to bring Christmas back to the Briarcliff. Sister Jude decided to stop celebrating this holiday, because last year Lee bit off the face of one of the male nurses, who was stupid enough to wear Santa's hat. And so Ian's character has been locked in the solitary ever since. Now, because Jude threw all the ornaments away, Mary has to be creative: she decorates the tree with patients' hair locks and fake teeth.
Frank is eaten up with remorse, and so he tells Dr. Arden that he wants to go to the police and tell them about Kit, Grace and the monster. Arthur tries to scare him by saying that Frank could be arrested for killing Grace, but the "former Irish cop" doesn't care.
The devil listens to some holy music watching flames and not feeling the danger: Sister Jude puts the razor (the letter opener?) from the last episode to Mary's throat. She realized that Mary's pure soul protects the devil from the holy icons and stuff, so she wonders what happens if she kills her protege. Well, she wasn't meant to find out just yet, because at first the devil showed her little psychokinetic tricks, and then Dr. Arden appears. Jude is escorted from the Briarcliff by the guards.
Mary Eunice releases the crazy Santa from "the hole" and gives him the new suit. She later gets a wicked present of her own from Dr. Arden: ruby earrings that a Jewish camper swallowed day after day to keep them till the time she's free again. When she died from internal bleeding, Arthur retrieved the earrings and now he hoped Mary Eunice would be horrified at the story behind this present, and the innocent girl would be back (or so he says), but she wasn't. A little later Mary kills Frank with the Christmas tree star - a present from Monsignor, who finds the new management of the institution very good.
Dr. Arden pleads Sister Jude to help him with Mary Eunice. She agrees and comes to the Briarcliff, however, turns out he tricked, her to prove his loyalty to the devil, and so Jude is locked in the room with Lee, who beats her and canes her. He didn't get to rape her, though, since she managed to get the letter opener and stick it to his neck.
Lana is playing Duchess Kate i.e. suffering from sickness in the Briarcliff infirmary, so there's almost no doubt that even though Sister Jude's done all she could to prevent that, the murder baby is conceived. Lana finds Kit in the same ward, sedated, and so she takes him off the drugs and tells him the truth about Thredson. She then goes to the room with the phone to call the police, but guess, who's there? Bloody face! He says he got rid off all the evidence, and now he wants to be reborn by taking Lana's skin off. He doesn't go through with this, because Kit knocks him out just in time. Lana wants to finish the bastard, but Kit stops her: Thredson is the only person who could save him from the chair. So they tie the killer up and place him to some room where no one ever goes to. Lana says to her tormentor: "One Day I'll bury you!" Well, I hope she will.
And the aliens took Grace's body, when Dr. Arden was taking it to the woods.
Despite all these manifests about Christmas becoming more and more commercial and less and less religious, and the hypocrisy of Santa Claus, this episode for me was about retaliation: at least temporarily, several characters managed to go from the victim to the victor: Lee, Jude and most importantly Lana.
The alien line is still out there and still not making much sense. Everything else seems pretty straight forward now.