We've heard somwhere the rule-of-thumb is to invite one friend per year the child is (or will be). This is not a bad rule of thumb but if you can handle it, but I think there are a number of benefits to ignoring this rule.

By if you

can handle it I do not mean it as a personal challenge or to say we are any superior to anybody else. Some factors may include if you have to the time to put the party together, the space to have everybody there (not just the kids, remember the parents and sometimes both parents and/or siblings), the comfort level of you and your children with that many people and the amount of help you have available.

My wife is a creative person who gets into the parties and comes up with some wonderful ideas for activities. Without her these parties would not work out nearly as well as they do and I try to do my part which often is to take care of the kids at night so she could focus on getting the craft ready, or making the pinata, or figuring out what foods or activities to have, or just who all is coming!

Early on, we did a very broad approach to inviting people for birthday and other parties (Easter Egg hunt, Halloween, etc.) invitinig just about everybody for a number of reasons;

• Not everybody will be able to make it
  Some say expect a 10% no-show. Even if they are not able to make it they will still appreciate being invitied.
• These our kids' peers, the people they will be going to school together with.
  By the time our oldest daughter went into Kindergarten she knew half or more of her class. I think that through these parties she formed a friendship with a number of them even if we were not able to have them over individually for play dates.
• Meet the parents of their friends.
  This is a wonderful opportunity to meet the parents of our children's friends so that they are more than "Timmy's Dad".  Most parents we've come across are willing to help out with the party by bringing Ice, juiceboxes, etc. or to help "herd the cats" from activity  to activity.  Some parents don't want to help which is fine and we make sure to not make them uncomfortable about that there is usally at least a couple willing to help.
• Socialize with other parents in the area.
  These parties are a great way to see the other parents in the area. This is especially true for me since I'm at work during the weekdays and don't have the same occurance of running across these people in the day-to-day.  Since most of the parties occur on the weekend, this is also a wonderful time to meet the other Dads and to have them involved with the kids.
  Sometimes it's an easy way for Dad to help Mom; by taking the kid(s) out of the house for a while.   Personally I love seeing other Dads who are involved and to swap advice or get some ideas.
• Gives me the chance to meet the kids.
  Just like with meeting the parents this is one of the few chances I get to really meet the kids! Even play dates are usually done by the time I get home from owrk. It's wonderful to be able to have a face to go with hearing the names of kids ours are invovled with!
• A chance to re-acquaint yourself with those that moved out of town.
  Eventually, somebody you've gotten to know may move out of town but still be not too far away.  Getting people to come over can sometimes be difficult, but seems a little easier when it's for a birthday party or some other occasion.

Now, though, it is getting to be a little more difficult with 3 children.  We've just completed our 2 birthday parties in 2 months with about 12 kids (~4 year olds) for one and 20 kids (~ 6 year olds) for the other!  Thankfully the weather was just right so we could go outside where there's enough space for them to run (we have a small house with a fair-sized lawn).

Parties like this, though, can get pretty expensive.  We've refrained from getting the inflatable bouncies, or hiring magicians or clowns, and we do as much as we can ourselves (cooking, entertainment, activites, etc.) to help keep the cost down.  So far (up to age 6) just all being together to play has been a fair part of the excitement of the parties, and we don't cram it with a ton of activities so that they have some free-play time inbetween and it has worked out so far.

And like I've said, my wife is very creative and gets into these projects.  Recently we had a "construction" party where everybody got the chance to break open their own geode and a "Fairy-bear" (Fairy and teddy bears combined) where the kids glued pieces of felt together to make a quilt for their fairy-bears!

This may not work for everybody, but I think if you're able to it is a wonderful way to for both parents and children to socialize and have fun!