I think the "no religion in the house" compromise is a great idea. First, the husband in this case would never agree to a prohibition to Watchtower publications being in the home. Second, as such, it forces the husband to realize how unreasonable it would be to allow the wife to have a Christmas tree in the home.
The whole "one room/no external decorations" is nonsensical. Like anything else with Jehovah's Witnesses, its an all or nothing religion.