We did a huge first birthday party for my daughter, with tons of friends and extended relatives...yeah, not doing that again. The expense was huge (at least, more than we felt we could afford at the time, living at my parents' house and all), the prep and clean-up were hard to manage, etc. Plus she was ONE and got so many presents that she got tired of opening them halfway through.
For her second birthday, we had the nuclear family over (husband's immediate fam, my immediate fam) and let her invite one friend (she could have done without that too, since she's a total introvert and ignored her friend the entire time). That was plenty stimulation for her. She got presents, cake, and played for hours in the yard while the grown-ups chatted. I honestly think she liked that much better. And so did her parents. :)
When my son came along, we didn't do a big 1st birthday blowout. Admittedly, I feel a little guilty over that (because my daughter had one, so of course, I've got mom guilt!). He's allergic to eggs, so we had berries and cool-whip instead of cake. We had the in-laws over for sunday brunch, opened presents, and sang happy birthday. Presumably, he loved it.
I admittedly have some guilt over not doing huge bashes like all my other mom friends. But we have huge families. Between prep, clean-up, decorations, food, etc., it just gets expensive and overwhelming. And the kids are seemingly just as happy with a few people and a gift or two.