K.S.
Keep it small (same number of friends as the age she is turning is a great rule of thumb) and keep it close to home. At that age she is going to have the most fun at home with people she knows. For my son's second birthday we set up a messy painting area as the fun activity (I warned the parents of the other kids to dress for mess). I hired a neighbor kid to be "in charge" of the painting area in order to help set it up and clean it up. That way I could enjoy the party along with my son.