I don't see any harm in getting the kids dressed up in costumes and going around the neighborhood asking for candy. There are plenty of ways to dress up without being grim and ghoulish.

Another common thing I see is harvest celebrations sponsored by churches....basically all the fun activities, dressing up, good food, etc without the horror elements of Halloween.

Personally this is one of those situations where I'd rather engage culture by participating in it in positive ways than shun it and try to be above the whole thing.

On the whole it strikes me as a "meat sacrificed to idols" type of situation...we know where the power lies and needn't be afraid of participating, but if we or someone around us is struggling with it, it's certainly fine to avoid it as long as we don't take on a self-righteous attitude towards Christians who do.