I had this same dilemma. This year, with an 18 month old, we got a mini tree to put on a table and are just moving all of the Christmas decorations up higher. I figure one year is worth less Christmas decorations rather than breaking all of my beloved ornaments and ect. Good luck finding a solution!

My stepmom didn't change anything.  She's keeps a baby gate to restrict baby to the downstairs year-round so she can watch her better, but that's it.  She figures if her daughter to be walking, then her daughter is old enough to be learning proper behavior.  She is constantly talking to her daughter and constantly taking advantage of learning opportunities.  I agree with @TinkerFly81@xanga -   take the opportunity to starting teaching the meaning of Christmas with her own play things, but establish them as her play things and even use them to distract her from the items on the tree.  She might not understand words and their meanings yet, but she'll understand gestures, and negative gestures will convince her not to perform unwanted behaviors after a few hints.  

We'll put the breakable ornaments on the top half of the tree and the shatterproof ones near the bottom.  Then we'll spank a lot of tiny hands when they get grabby.

We put our tree in the corner and bought a metal "superyard" around the tree about 2 feet away. We decorated it the same as always and it worked perfectly. I then put garland on the gate and some lights make the gate look a little nicer.

For the scenes and things to be plugged in I got a surge protector and plugged all the houses into it and secured it to the table. I already had the outlet covers that automatically slide back when the plug is pulled out, so the worst that could happen was if he unplugged the surge protector. Just get some fake snow to cover all the plugs and ugliness.

We're in the same predicament.  This year, I'm letting my six year old pick the regular ornaments he likes the most, and we'll put those toward the top of the tree and then we'll make some homemade ones this year to put on the rest of the tree that we won't mind him pulling off.  We put my husband's Christmas village up on the mantel, just without the lights and cords.  And we won't be hanging stockings till we get to my folks house, because he's a tall one and could reach and will definitely pull on them.  And those hangers are heavy suckers.  Our nativity we put up on a bookshelf out of his reach, but within my six year old's.  The pieces aren't breakable (the stable is) and he likes to play with them.  And most of the rest we will save for other years.  My grandmothers aluminum tree with the color wheel won't see the light of day for a few years.  I have another babe on the way, so next year ought to be pretty similar.  The real test will be at my folks house.  My mom has ten trees all over the house.  

My daughter did the "ball" shatter thing too... aside from her, we also have four cats and cats love to bat at ornaments and climb up trees.  We have a little (3 ft) tree which we put up on top of the TV so that it is out of reach as well as not near anything climbable.  We also decorate nonbreakable ornaments and/or ornaments I don't care about.  Last year I actually made a whole set of soft ornaments as well as those cute little clothespin reindeer we used to make in grade school.  I was more concerned with the metal hooks than anything else so being able to clip the ornaments on the tree calmed my nerves a bit.

The biggest problem though is leaving the presents out because she likes to open them!  So we just put a few small ones under the tree and put the rest away until Christmas morning.  Another option I've seen is some people get the big baby gates and put the tree and presents within  an enclosure of gates to keep little ones out.  Won't work for cats though!

I think that you should stick with decorating but make minor adjustments if you need to don't hang things on the bottom of the tree or close to edges of the table but i also think you should involve the child in the process and teach them that the decorations are for the tree ad not toys and that they have.... over there to play with and entertain your kids.

Sell the baby.  Or rent it out during the holidays.

what I did with each of my 4 kids. I put the stockings up on the wall with the removable hooks, Decorated the tree with plush and wood ornaments that wouldn't get hurt with them exploring and did a little tree with the really nice decorations up on a table and made it off limits. This gave me a nice tree that I could really enjoy how pretty it was and it gave me a teaching tool of "don't touch this it is breakable and this you can touch because it won't break". I put plush reindeer and snowmen down low and up higher I put the nativity scene for the same reasons. I love christmas and now my kids love it too. They also know what they can and can't touch. Hope this gives you some ideas.

@bullracer@xanga - great idea renting the baby...!!! Not only do you get to have christmas all nice and calm you also get to make money