What is the difference between a graven image sand having Nativity sets or other sculptures which include images of the Savior?
The difference between images and idols is recognizing the creator and the creation.
When the Israelites were attacked by poisonous snakes Moses raised a brass serpent on a pole. He told them all they had to do was look and they would be healed (Numbers 21:5-9). The Lord saw no contradiction between commanding Moses to have no graven image, and commanding him to construct an image in the likeness of a snake. Spiritually enlightened saints recognized the brass serpent as a symbol of the healing Messiah (Alma 33:19-22). Unfortunately, the God of miracles was forgotten in lieu of the miraculous artifact itself. Israelites started to reverence the staff and burn incense to it. It became a graven image once people started worshipping it. At that point Hezekiah had it destroyed (2 Kings 18:4).
Today we have several representations of the Savior: paintings, murals, statues, dramas and films. There is no harm so long as these images remind us of the Creator. If these symbols themselves become objects of worship, we would do well to follow King Hezekiah’s example and remove them from our lives.