We ask for "experiences". With 3 kids - 2 have bday's in December - I have more toys that I can handle. And we have an insane hand me down circle going, so clothes that are new are appreciated, but we ask for stuff that the kids reallllly want, like my daughter had her eye on this rocker outfit. Or a cool hat and glove set for my son. Or name brand tennis shoes for my other daughter.
We usually ask for a family membership somewhere - like the Science Center, Zoo, etc. One year, we got a membership to the YMCA. That was awesome! Or Gymboree or something that you can do "together". My family and in-laws usually get an accesory to a toy they already own for each of the kids, or a magazine subscription, and then wrap a box that has the brochure to the "experience" of that year.
I have to say that my kids really do love getting these things. We have never gone crazy and gotten a bunch of toys. I am all about second hand - my son is into games this year and we found 6 at the Salvation Army that were in NEW condition. My middle daughter is all about art projects and jewlry making, so we bought her a cool organizer and will scour for clearence beads and stuff. My oldest is going to be 11, so we are looking into getting some kind of music player.
Good luck, this is a real tough one with small kids!