Oh my gosh... I'm in the same boat as you are. My one and only nephew just turned 1 this December, and they have another one coming in July. I'm sure I can learn from the advice that you will be getting, but maybe I can throw in what I've been doing.
Because I'm a first time aunt, I've learned that anything I can do to help them out as a family is good. I offer to dogsit if they're going out of town, babysit if they need a night off, and sometimes, during a week, I'll call a night or two ahead and offer to bring dinner over for the family (I'm single without kids, and live on a budget, but I'm still a fan of takeout spaghetti and breadsticks, or pizza, and it's usually not too expensive for several people, once in awhile- if you cook, even better).
I'm also the nerd of the family, and I know that not everyone takes the word 'nerd' as a compliment as I do, but I've kind of made the gift of books and musical CDs 'my' gifts... I give books at birthdays and holidays, and have considered that maybe even as they get older, I'll volunteer to buy their first bunch of books for college, (something I'm looking forward to, and would have loved personally) and I like to think that I'm creating something so positive as the love of books.
I also like to create CDs of kid's songs and give them for fun... I've learned that my nephew's mom likes to use music to get him either motivated or to listen to while playing (he's quite the little dancer), or slower stuff to wind him down at night, and it's helped her to have choices of what to listen to, so one CD doesn't get too old. It's been fun for me because I can introduce him to some of the fun (clean) music I like and also to some of the stuff that my grandma used to sing to my brother and I.
As far as interaction goes, this is good because we'll put in a CD that I made, and it's of course music I love that I've chosen for the beat or the fun lyrics (I've even snuck in some of my favorite band Aerosmith... Steven Tyler has a song he did for SesameStreet, called I Love Trash), and I'll dance around with him, or just get goofy and dance for him. (He's 14 months, and doesn't judge, and the exercise is good for me). I use itunes.com to buy single songs and burn CDs, but you can also buy children's CDs online or at stores, if it's easier for you than compiling and burning.
I also love books and illustration, and love to shop for and give him fun books. His current favorite is one I gave him, where it has bumpy monkeys he can touch and feel, and one disappears as you turn each page... (they're jumping on the bed, and you know what happens when one falls off...)it's cool to me to see him enjoying it. I'm looking forward to next Christmas, where I can give him and his new sibling some books that I found on this site: http://www.iseeme.com/ that illustrates their name and the alphabet. If you're interested, there's also a coupon code for free shipping, and it's FSJ11435A. I learned about them at firstbook.org.
Anyway, I'm having fun being a new Aunt, and I hope some of this helps, and that you have as much fun with your little guys/gals as I do with my new nephew and plan to have with the next one (gender yet to be determined). :)