We just did my daughters 5th birthday. All the kids in her class were having really lavish parties, but because both my husband and I are in college, our finances are very tight. Throw in the fact that my daughter's birthday is the 23rd of December and that's a heck of a situation! We decided to have a few of her favorite classmates over for cake and ice cream, and then everyone loaded up into their car and we all drove to Chuck E Cheese where we gave each child 10 tokens. We had balloons and hats and blowers and when everyone arrived we went right into singing happy birthday and cutting the cake.
All the kids ate their cake and ice cream, and then we let our daughter open up the presents everyone brought. Once all the presents were unwrapped we all took off. Everyone had a wonderful time, and my daughter did not feel like she wasn't able to celebrate her birthday as nicely as the other kids. It cost us about $50 total, because I made the cake myself. She got to give her friends invitations that specifically stated we would be having cake and ice cream and then going to CEC so all the parents knew what to expect.
I would reccomend not doing it on a weekend though, since places like chuck e cheese get pretty crowded on those days.