J.
I agree with what Sigrid and others said - you need to always supervise no matter what, and a waiver won't protect you from being sued. Just make sure your insurance is adequate, and if you have questions about waivers, why not check with your agent on whether it would change your premium. I definitely wouldn't host the block party in the yard, but with supervision and safety rules everyone should be able to have a safe, fun time.
Also, if you think it through - if a friend or relative's child did have a horrible accident and needed, god forbid, years of life support, would you really want to deny them access to insurance money anyway?