The party things I remember most fondly from my own youth were dressing up parties with a simple theme (that and indoor fireworks, which you can't get any more). Try pirates, Harry Potter, faeries or fairies, monsters (always a good one), animals, ocean, your child's favourite film or even favourite colour - something the children will have a vague grasp of and isn't too hard for the parents to invent. A novelty cake (http://bit.ly/IJLXrh for abebooks search) is a nice idea if you've got the time. Magicians are great but expensive.
Then the only thing you need to worry about is games! Pass the parcel, with a small prize in the middle and a sweet in between each layer, or musical bumps (also known as statues - because chairs are a little awkward, small kids can either fall to the floor or freeze when the music stops). To be honest they'll probably invent their own games of violence and destruction if you take your eyes off them for a minute.
Party bags are ethically questionable - being as they are spoiling tools for other people's children. But I guess you have to do whatever your own kid expects in that area. Good luck!
