I think it is a great idea. Haven't done a charity in lieu of gift party but have done a no gift party. It is not that the child does not get anything. She gets to celebrate with her friends and most likely got a special gift from mom and dad (like ours did -she was 3 at that time). Now my 6 year old is requesting a no gift party for her 7th.
I have girlfriends who have girls that we all are pretty close and every Christmas, instead of exchanging gifts, we get together to do something fun. This year we had a shoebox frolic that we donated to the local shelter through my dd's school. The girls who were 3-6 year olds had a blast putting the boxes together.
You can fashion it's contents towards children in the shelter
Each child can bring a shoe box
*toothbrush and toothpaste (my dd asked he dentist for these and came home with 1 doz toothbrushes and 72 tubes of toothpaste to donate)
*shampoo- travel size (TS)
*body wash -TS
*arts and crafts
It's nice because the kids become aware of gifting and the shelter kids on turn experiences ownership. Even if it is just a shoebox, it can mean a lot.
Kuddos to you for doing this