My neighbors across the street have a huge Great Dane (almost 190 pounds). They have a queen size bed. If the dog beats them to the bed, they have to sleep to accomodate him and he hogs all the covers plus the pillow. He also occasionally wets the bed. THAT'S where I would be drawing the line. Not them. Amazing.
My little one on the other hand is 13.5 pounds and snuggles with us every night. We have a king sized bed so there's plenty of room. She snores like a horse, but since she has hair and no fur, she does not shed and her hair is very silky. There's something to be said to waking up eye to eye, nose to nose on the pillow with a little cuddler like this one every morning and getting your nose licked before you can react.
My take on this: if you are uncomfortable with your dog in the bed (itching, etc.), then you need to escort him back to his bed and tell him to stay. You may have to do it a few times, but it's about your comfort and sleep and YOU being the alpha dog in the family, not him.
PS. Take a gander at the "Dog Whisperer". Great show with good examples of how to change canine behavior.