Privately sponsored religious displays differ from those supported by the government in that a private group owns, stores and erects the display. Furthermore, the display is usually placed in an area open to all manner of speech, for example the proverbial "public square" in the center of town or in public parks. This is what makes them wholly private, because the displays are not given any special treatment or consideration which is unavailable to other displays from other groups through the year.
Because the actual symbols and the manner of display are not in any way controlled or determined by government officials, there is no basis in supposing even vaguely that observers will think that the content is endorsed by the government. Thus, there is a great deal more freedom in what can be done and what can be shown. Because these displays express the views of some private group, there is no "plastic reindeer" requirement — they can be exclusively and explicitly religious. It can stand alone and it doesn't have to have any secular context.
Keeping Private Nativity Displays Constitutional
However, there are additional requirements which exist. For example, because the display is simply a statement by a private group, it must be temporary rather than permanent. A permanent display would suggest an on-going relationship between the content of the speech and the government, while a temporary display is analogous to private citizens standing around for a gathering or holding signs.
Also, there needs to be some sort of disclaimer accompanying the display — for example, "This display is privately sponsored by the XYZ company. The City of Smithville neither opposes or endorses this display." Such a disclaimer is designed to make it clear that the unattended, free-standing display comes from a private group — something which is not normally a problem when it comes to a person walking along and holding a sign.
Finally, this public area must be open to all forms of speech with no regulation of content. Thus, if the government permits a Christian church to erect a nativity display, it must also allow a Jewish synagogue to put up a menorah, a freethought group to display a sign opposing violations of the separation of church and state, and the KKK to erect a large cross (Capitol Square Review Board v. Pinette). For government officials to permit secular displays while prohibiting religious displays would be evidence of a hostility towards religion which accommodationists so often complain about.
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