For my daughter's first, we did end up having a big party, but since her bday is in July we did it at our house. We only invited family and close friends, but even still it was about 100 people (my husband has a huge family). I rented a tent and tables and chairs and my dad did all the cooking. I bought some toys from the party store for the kids to play with (sidewalk chalk, balls, etc.) and that was it. We didn't do anything elaborate or over the top. I did the Sesame Street first birthday theme, but it was really just the table cloths and cake plates, a couple of balloons and the cake. I got goody bag favors from Oriental Trading.
Though there were a ton of people, it was so casual and I was able to be relaxed and just enjoyed the day.
Do what you want to do and what you can afford. Don't go bankrupt just to top the neighbors. It's not worth it.