I think there are a couple of ways to go on this. It is a huge dilemma because you are caught between not wanting to criticize your best friend and demonstrating your own values to your child. I think it was Eleanor Roosevelt who said "No one can make you feel inferior without your permission." You do not have to feel guilty about this - and you are already spending up to $30 on a gift, which is pretty heavy duty already. You can't control her, but you can control your own behavior as well as your own reaction. First, don't always go overboard with the thanks because your friend is so generous - generosity is NOT defined by purchase price. It's also defined by time, thoughtfulness, etc. I don't mean to suggest that you and your child NOT be grateful, but that the gratitude not be proportional to the price tag. You can also live your own values by refusing to complete, by giving fun things like a "coupon" for a special day with her child, etc. You can teach your children to get excited about such gifts of the heart - say to them, "Look how much thought Johnny put into your gift, coming up with something really special for you" or "What a wonderful gift that Aunt Sally came up with - a day at the beach and an ice cream, just the two of you." Make gifts for others. Be sure, at other parties, you oooh and aaaah over every gift, particularly the small ones or the heartfelt ones.
I refused to get on this merry-go-round of parties when my son was small. We didn't invite 20 kids to a party, and we didn't go to parties of 20 kids. It's ridiculous - I didn't want my child to get 20 (or 30 or 40) gifts on a birthday. I also insisted that he write a thank you note - or that he sit with me and tell me what to say, before he was able to write. "What do you think we should say to Nana to thank her for the toy boat she gave you? How are you going to play with it?" and then I would write down what he said. Even if it was silly, it was still from him! And believe me, if a child has to write 30 thank you notes, he or she really has no clue after a while who gave him what! It becomes a blur, and way beyond what he/she can even process or comprehend. We followed the "age" rule - when he was 4, he could invite 4 kids. When he was 8, he invited 8. Beyond that, he started wanting to do things like go to a movie or bowling, out to a fun place to eat. So we based it on how many could fit in our car. He had more fun than he would have sitting there opening 30 gifts, and the guests had WAY more fun than sitting around watching someone else open 30 gifts! We also never did those over-the-top parties with moon walks and ponies and other outrageous expenses. We had treasure hunts and did old-style games (which the kids didn't know) like potato races and what not - I went to the library and took out old books on party games, and it was so fun!!! I think you can just live and demonstrate your values. That MIGHT mean turning down invitations for ridiculous parties. Your child will survive, and will learn to make decisions. My child never really knew what he was "missing" and he learned to choose his favorite friends, not invite the whole class. When he got older, we had a very sensible bar mitzvah, based on community service and religion with a healthy dose of fun, but very far from the big productions. He turned down invitations from people who worried more about "themes" and "centerpieces" and so on. He DID invite his entire religious school class, because a bar mitzvah is about community, and we scaled down the menu rather than leave anyone out. We had simple favors, not big goodie bags. Our son has strong values, is well liked and extremely well respected, and is a true leader. I think we did some things right. We may have lost a "friend" or two but these were more superficial people. Our son also learned to work hard, not to sit around and expect things to be handed to him - THAT is a huge problem these days.
The other option is to sit your friend down, since you are so close, and tell her how you feel! I think her need to spend is NOT based on what is best for the kids, but is meeting some need in HER. There are NO early childhood experts who will tell you that her behavior has a positive effect on children. It just sets them up to expect handouts and big spending. You can tell her to scale it back, or to limit it to certain holidays. I have older stepchildren who have little kids, and what we do is give them birthday and Christmas or Hanukkah gifts. Period. For other holidays, we send cards and stickers or some little novelty. We also do a lot of "coupons" for a day at the zoo, the museum, the park, a day of crafts, whatever we think the kids will like. My stepdaughter's husband even asked us NOT to overdo it, because he can't stop his mother or his wife's mother -- and he knew we were the ONLY ones who would listen! He opened a closet so full of toys the kids don't even know what's there. He said, "Do you really want to add to this?" I said, "Message received!" We do books or "a day out" gifts. And the children love us as much as they love anyone else! I buy toys at yard sales to keep in my house, and the kids just dive into the toy chest when they come. They couldn't care less about the "latest things".
As kids get older, if they are conditioned to accepting the attentions of the highest bidder, it leads to all kinds of problems. They don't work as hard in school, they don't know the value of work, and they don't do community service. My son now works at Friendly's, and says they have trouble keeping help because too many kids quit after one day because "it's too hard." My son, by contrast, works so hard at his track/cross country training because he knows that the greastest "high" comes from personal accomplishment after a lot of hard work. We've had our issues with him, don't get me wrong - he's not perfect! But schools, colleges and even employers will tell you they have huge problems with kids who feel "entitled" - parents actually call college professors or deans, and even employers (!), asking for Johnny to get an A or for Susie to get a raise, or complaining that Mary didn't like her performance review -- they're called "Helicopter Parents" because they hover even when kids are in their 20s and 30s! These are all kids whose lives were influenced by adults who handed them too much and did too much for them. They don't know how to make decisions, how to function, how to deal with adversity.
IF you sit your friend down, she may be resentful - but you also know her very well so you can decide. But the main thing to do is to stress to your child that their godmother loves them, and that the gifts have nothing to do with the love. It's just something she does,and you do things differently. If your child starts to feel inferior by "only" bringing a smaller gift to a party, then you need to address why your child feels judged by her income or expenditures. The sooner you engage in these types of conversations or short expressions of core values, the better! Good luck!