I had exactly the same issue with my FIL when he was alive. He would make every family get together uncomfortable, he would say really spiteful/cruel/unpleasant things to individual family members at every opportunity and I was also in the firing line despite never being anything but polite, friendly and appropriately behaved. My dh did the same as yours, pretended he hadn't seen or heard anything, as did all other family members. Or they played stuff down.
They were all frightened of him, and no one would ever confront him or hold him accountable for his behaviour- it was always the person being insulted's fault and never my FIL's fault. My BIL and SIL both suffer (and still suffer) from emotional difficulties due to how FIL treated them- BIL holds all emotions in and is very cold, always stressed and anxious, very harsh and judgemental. My SIL is overly emotional, struggles to regulate her emotions and can't cope with any level of stress in her life at all. I also felt at times like the answer would be to divorce my dh, and we had terrible arguments about it over the years.
Anyway, in the end, after 15 years of ruined celebrations, hundreds of nasty comments and uncomfortable situations, I had enough and I literally exploded in anger and shouted at him. My MIL then pleaded with me to speak to him and sort it out, so I met with them and my dh, and my FIL immediately started goading me. At that point, after a few choice words directed at him, I told him I was done with him and I went NC with him. The family, apart from BIL, all sided with me initially, but when it became clear that I wouldn't be backtracking on what I'd said, a number of them tried to force me into situations where I had to see him/speak to him, and then got very critical of me behind my back.
My dh, however, finally realised how his father's behaviour had affected me and backed me up and completely supported my decision not to be around FIL. My SIL's husband also backed me completely and fought my corner when other family members badmouthed me.
Anyway, life became so much happier and relaxed once I removed FIL from my life. We do have children and I was happy for them to continue a relationship with him on the proviso that he didn't say anything nasty to them, or say anything nasty about me or my family, or anything racist or misogynistic to them. And he never did, although I don't doubt that he would have done as they got older if he had lived longer, as he once something utterly revolting to my niece.
Anyway, moral of the story is, you don't need to accommodate this man at all. If you don't want to ruin Christmas Day with the stress of seeing him or even being in the near vicinity as him, then you don't have to. You don't owe anyone your time or civility, particularly when they are consistently unpleasant to you. And your DH needs to understand that his loyalty is to you in a situation where you are the victim of his father's nastiness. You also need to firmly assert your boundaries to your dh and don't deviate from what you feel comfortable with. Good luck.