CS Lewis made a strong distinction between pagan and heathen in his writing. I would like to hold to his way of looking at things, because I think it would be a useful distinction. The actual pagans, like Wiccans, have revived the term and do use it for themselves in much the same way that he did, meaning worshipers of nature gods rather than as a simple pejorative for unbelievers. Still, one will find the two terms regarded as synonyms in much writing, and I don't want to be misunderstood. Both words come from similar roots, meaning country or rural dweller (as in "heath," see it?) If that seems the reverse of American and European demographics today, with the city dwellers being much less likely to be churchgoers than the rural folk, I think that becomes clearer if we look at the people of the countryside often being those who hold to the old religion, which in current Western Civ is Christianity, and city-dwellers following the new religion, liberalism. But in previous eras Christianity was the new religion, not the old one. (I am in an email discussion about whether this holds true in the Third World today and think that this is so in many places, but Latin America has wildly different patterns, likely owing to its longstanding Catholicism which has seen recent competition from Pentecostalism. I'm not seeing that pattern clearly there.)
So in that formulation, pagans worship other gods while heathens are more generic unbelievers in monotheism.
Lewis had a great deal of sympathy for paganism, and found some impulse within himself to worship these natural gods and goddesses. I do not in the least share this. It is a temptation I do not share, and take no protections against it. However I might remove myself from the Church and God's grace, that won't be it. Shortly after my conversion, the person who led me to Christ, a very artsy person, was playing Stravinsky's "Rite of Spring" when I was visiting. I shuddered. I had heard of, but never heard the piece, but immediately recognised "That's. Just. Pagan." and I did not mean it as a neutral evaluative description. I suppose that means that Stravinsky achieved his desired effect very well, if a first time listener could instantly discern that this was a rite of something natural, spring being a good guess.
That the pagan spirits can be enjoyed by Christians, once they have been fully submitted to Christ, died and buried in the ground to rise again like a grain of wheat (natural image), is all over Lewis's fiction. These have never been the parts that moved me most, but I have heard enough from fans who were moved to not dismiss it lightly. The Oyarsa of the Ransom Trilogy as well as Tinudril; Ungit and Cupid and Psyche in Till We Have Faces; the lead quote of "Forms of Things Unknown" (The Dark Tower and Other Stories) explains how a Medusa appears to - and petrifies - a terrestrial human. "...that what was myth in one world might always be fact in some other."
The myths of our own world appear as real creatures throughout Narnia. Lewis humorously gives example of this being an interpenetration on Mr Tumnus's bookshelf Is Man a Myth? and more seriously at the edge of the world in Voyage of the Dawn Treader, where a Christ-figure more familiar in ours appears in Narnia. Father Christmas looks like an intrusion, a mistake in the plot of The Lion, the Witch and the Wardrobe, until we see that point, that Lewis is intentionally making a world in which all our mythological figures are realities in that other. The even deeper idea underlying this in The Last Battle, that even those figures in a hundred other worlds are expressions of their Platonic ideals in Aslan's own country. I will stuff in here that I have come back to accepting Michael Ward's theory in Planet Narnia, that the seven chronicles are each tied a planetary influence, Jupiter for LWW, Mars for Prince Caspian, etc. I believed it, then discarded it as too forced, and have now come back to it. Ward oversells the idea in places, but the idea that the atmosphere, the influence, the palette if you will of each planet is real throughout a book.
I am not entirely insensitive to the different flavors of having Merlin versus dryads versus unicorns operating in the story, but I sense that others feel these things much more keenly than I. Ents are an atmosphere, Tom Bombadil was a mere neutral to me. The appearance of Pan in The Wind In The Willows was boring, not offensive.
Lewis explains this better than I, and if I do not convince you here of the legitimacy of use of paganism in his fiction you should read his own better explanations, or more easily, reflect on whether they make sense in the characters you already know of his fiction. The Bible is somewhat ambiguous in its description of other spiritual forces, in some places regarding them as having no power, in others as possessing real but lesser power than God. Returning to the idea of coinherence again, Lewis would likely say that they have some derivative power, whether from God or from satan, but unreliably in both goodness and might. While allowing that such might be so, I would propose an analogy that I hope works. These gods and goddesses, these Aphrodites and Thors and Baals have distinct flavors but no nutrition. We might say the same of devotions to the saints, that they never claim to be nutrition in themselves, but would point you to the Eucharist instead. Yet all might have a flavor which can be used to appeal to various regions or problems. Thus in literature, it is entirely appropriate to have a jovial character like Father Christmas as flavor, expression, atmosphere. It doesn't work that well for me personally, but I can see how it might not be forbidden. Grim can keep his Hogmanay videos and the like after all. No penalty. It's just a flavor.