I agree with the dollar bin ideas at Target and Dollar Tree.
I also have a friend who is great at watching the clearance sales on toys; for her daughter's fifth birthday, everybody got a Disney Princess Barbie. It sounds expensive, but she managed to find about twenty to thirty dolls on clearance for fifteen bucks for the total purchase (who knows what the regular cost would be). For a boy, watch for clearance sales on cars or maybe a coloring book/crayons?
Lastly: I am going to refer you to a friend's blog:
http://deannam.blogspot.com/
Go to her Monday, March 2, 2009 entry for this idea:
She is into all things homemade, still nice, but affordable. For her son's birthday party, she made homemade activity pads which did not cost hardly anything. My just turned four year old loved it.
Good luck!