I agree April. I think in response to being wished a Happy Holidy I will respond with " A Happy Holy Day to you too!"
I respond with.."what holiday? 4th of July, Memorial Day?"
I smile and say Merry Christmas to everybody I meet. Along with the small nativity pin I wear, people get the drift.
Yes, rudely make them feel like they did something wrong. People have been saying "happy holidays" for ages, but you be sure to put them in their place. That'll show 'em!
I would suggest a sincere Merry Christmas in response, not a "correction" of their pronunciation that could be taken as a rebuke.