The New York Times has an article talking about parents who ask for money for charities instead of birthday presents at their kids' parties . The article quotes Miss Manners suggesting that it's bad to spend your guests' money on your charities. I would tend to agree.
There's a better way to avoid excess.
The 5-year old was born on the same day as one of his classmates. The two kids wanted to share a pool party even though both sets of parents offered to give them separate parties. (Count me a proud father).
Then, they agreed to my wife's suggestion of being less extravagant with gifts. They asked their friends to each bring a book. At the party, we had the kids sit in a circle, sing "Happy Birthday", and pass the book they'd brought along to the person to their left. Thus, every kid left the party with a book. We bought M. (the other kid) a birthday present and M's parents bought S. one.
The parents didn't feel bad, because they had brought something: just not for the birthday kid. And we didn't buy goodie bags (each guest left with a book). The birthday kids got to feel special because they got a nicely wrapped birthday present, but didn't end up with 24 articles destined to be played with once and discarded. Only one kid (a 2-yr old sibling of one of the 5-yr old guests) cried because he wanted to keep the book he came with. Based on that, the idea won't work for 3-yr old parties, but for 5-year olds and older, a book swap is a very workable solution.