K.P.
This year, I had a party on the same day and same time (for convenience of friends, family and ourselves), and I just had my 2yr old play with his trains and toys in his train room and my 4yr old was in his space room doing space things (crafts and games) with his friends. This was a year that they were both really into 2 different things and 2 completely different age levels.
Last year, they were 1 & 3, so I picked a mutual theme, and we had one HUGE party with about 30 kids 1-4yrs. We had a big circus party where we sang happy birthday to both of them but seperately, they both had their own small individual cake (to make it a little more special and individual) along with the big cakes for the party. Because I was having 2 parties in 1, we could make a bigger deal out of it. I usually spend about $50-$100 on entertainment, games, crafts, etc for parties, so I was able to double that for a double party. We had a "3 ring circus" with a clown, a moonbounce (that we already owned), and an animal "ring" with pony rides and a little mini petting area with several small animals. We also had face painting (done by a friend) and cotton candy (several big bags from the Dollar Tree fluffed up in a big bowl) and hot dogs to eat. I got some great little things from the dollar tree to put in the goody bag that went great with the theme. Everything together was around $150-$175 (with minimal decorations), but it seemed massively extravagant. You just need to do a lot of asking around, comparing, and use of people you already know.
Next year, they'll be 3 & 5, so we're going to have another combo party. My 4yr old's already decided that he wants it to be a magic party. I've already started getting a few things here and there (like magic kits and favors when I find them on sale) to make it more affordable for me. DH has a friend that's a magician that will do the party for about $100 and (and he specializes in kid parties). He said He'd make it special for the both of them with them separately being "special magicians" at no extra cost other than the cost of the magic kit he gives them at the end of the show (which I already have bought for really cheap). A lot of people (like our clown we had) will do the same stuff for 2 kids as they do for 1 at the same cost.
As far as helping the 1yr old deal with the baby, just involve her in everything she can be involved with. I have 2 that are 13 1/2 mths apart, and when #2 arrived, #1 was in shock. I have SEVERAL pictures of both of them in my lap being rocked or taking a nap together in my arms. :) I tried to make the transition from #1 being my baby to #2 being my "baby" as smoothly and unnoticed as possible. I always made (and still make) time for both of them to have their own individual "mommy" time. To transition #1 from being on your hip all of the time to #2, get #1 to start helping you throw diapers away and bring you diapers and other things. Give her her own baby doll and baby swing and have her take care of her baby while you take care of yours. Get her involved with making the baby happy while she's in the swing or on the floor with tummy time. She can be your helper by shaking toys in front of the baby or making silly faces at her. My son LOVED (yes, even at 14 & 15mths old) making the baby laugh and doing stuff to help.
I hope something that I said helps a little bit. The 1st 1 - 1 1/2yrs with 2 that close can be REALLY rough and exhausting, but after that, it's AWESOME. I prefer that now to anything. They always have someone to play with and don't need constant entertaining. They're close enough to the same age group to play with the same age level toys and be in the same age level/group in sports, music, scouts etc most of the time. We were really stressed with the thought of two 13mths apart at first, but then we decided we wanted our next 2 to be just as close. Unfortunately, that's not how it turned out. Soon we'll have 5,4,2 and baby. 2 yrs is good, but 1yr is great.
GL! and feel free to come to me any time.