The Chicago Cultural Center is free. There is a great fiber art exhibit there now.
Check out the Mary Poppins windows at Macy's on State Street...used to be the old Marshall Field's. The Christmas tree in the Walnut Room (restaurant) is beautiful and features Wedgwood ornaments designed by Vera Wang. Eating around the tree is a Chicago area Christmas tradition for many families.
There is an outdoor market - Christkindlmart (sp?!) - across from Macy's. Lots of German vendors but I think some Asian and South American vendors are there as well this year.
The Sears Tower, Art Institute and Millenium Park are great Loop area suggestions as well.
Have a great time! Where are you staying? There is a nice hostel on Congress...can't remember the name but you can google it.