I have made a few Nativity scenes, mostly for family and friends. Here's my third, which I gave to my niece. My method so far has been to take a piece of sturdy board and create an open fronted structure in broadly traditional style, from pieces of stripwood and scraps. It's quite time consuming making the walls and roof, but I don't like the unconvincing look of the flat pieces used for walls etc. that you find in commercial products.
No, I didn't sculpt or even paint the figures, since these perfectly good ones were available. Not that I'd have minded a paint job - I've assembled and painted quite a few figures to go with my biplane scenes. These ones are ~ 3½ inches tall. My niece was certainly grateful, but I have to regretfully report that Joseph is now legless following an unexplained incident involving the donkey.
This was where I became a little more ambitious, deciding to incorporate LED lighting. A very simple circuit - the battery and switch are in a convenient shed at the back. The wiring is concealed in the beams. It's true that the style of the lamp is anachronistic. It looks somewhat C18 or C19 rather than Year Dot; if Palestinians of that era had lanterns at all, I doubt if they'd have resembled this one. I have a weak excuse, in that it still manages to look 'old-timey' and, after all, the whole conception of the Nativity scene owes more to Victorian traditions than any scholarly study of early dwellings in the Middle East. I did consider going further and adding a flickering effect to the light but at the time it seemed it would add substantial cost to the project, unnecessary in this case.