Target is great so long as you have a receipt of gift receipt. They get difficult when you don't have that. I think they let you return just 2 items per calendar year without a receipt (or something like that) and even then you have to exchange it for something from the same department. Still, I like them. They have good quality stuff at reasonable prices. I had registered with both Target and Babies R Us.
As for "must have item," it really depends on your lifestyle. For instance if you breastfeed, a Boppy (and a spare cover) is a must-have! And as boring as it may sound (meaning no one will probably want to buy it), a breast pump is also a necessity if you plan on going back to work or even having hubby take care of some late night feeds! Don't skimp here, get a good one! You can probably have a lot of debate on diaper pails, but most of my friends love the Diaper Champ and hate the Genie. We actually went out and bought two (one for upstairs and one for downstairs.) The other must have is from my son's perspective, he loves his Prince Lionheart Slumber Bear. It really soothed him as a tiny baby, and he still sleeps with it in his crib.
More than what you do need, really think about what you don't need. There's a lot of products out there they sell to new moms that are a waste of money. Don't just add them to your registry because they're there. Talk to your friends with babies or feel free to message me for ideas of you'd like.
Congratulations and enjoy your peace and quiet while you can :)