Be creative and have fun with what you plan. I think its a great idea for your 5 year old.
We did this when my DD turned 6. The invitations read, "Elizabeth's having a PJ Party With Everything But The Sleep Over!" There were about 15 girls - all the girls from her class (we had just moved in and it was a great way to meet all the girls and their moms!)
* The girls came in their pj's & slippers
* I made up coloring sheets of different Disney characters for coloring
* French Toast, OJ and hash browns for dinner and cinnamon buns for cake
* Some games were freeze dancing and pass the purse (hot potato)
* I had a nail station and each girl got her nails painted and a few nail decals
* They were kindergarteners and into coloring so I had these wooden groovy girl cutouts from Michael's (they're normally $1 but I got them cheaper - bought 50 of them and they gave me a break of about 30%!)
* The favor was a tooth fairy pillow. I sew (really, anyone can do that!) and got a bunch of scrap fabric.
* They also went home with painted nails, the wooden dolls, some really simple game prizes (head bands, change purse, etc.)
The total cost of the party was super, super cheap. Yes - I had a bunch of those wooden dolls but they each colored at least two and I've used them again for Brownies, rainy days, etc. The most expensive part was buying the food! It was about 2 hours long.
This year she turned 8 and had a REAL sleep-over. Seven girls total, colored pillow cases I had put their names on with iron-on decals, made friendship pins, played American Girl for hours (it was a AG Sleep Over), I had cut out their first initial out of that plastic sewing grid stuff and they sewed on it with colorful yarn, watched a movie, ate (and ate and ate!) I made adorable doll sleeping bags and pillows for each girl and played the 'Left Right Game' for who got what patterns. Those were favors along with the pins and pillow cases. And of course, the cranky dispositions since they stayed up until 2 am!