I think given the choice, almost everyone would rather celebrate under better circumstances.
Viral stomach flus can be awful for families with multiple kids. The parents can get run down, and then get it themselves.
ETA - Just thought again. I wouldn't think of it as cancelling, but just postponing - I think if you were to call your friends, and say "Billy been sick the last couple of days, and we think it would be best to reschedule" most would appreciate it.
You might get the odd person who would say "Oh that's ok we'll come over" - but 9/10 I think would rather do it on a different weekend. I don't think anyone will feel put out.
I just think it's a slight hiccup. I think in the end, he'll enjoy it more and you won't have this worry. If it is flu, he's likely contagious.
I would just keep it simple, and reschedule. I mean, you could leave it to everyone's discretion - and let them decide, but then you might only have a few come. Or you could not tell people and keep him off to the side, but then you'd have to make sure he wouldn't touch the same toys, everyone meticulous about washing hands, etc. To me, it makes more sense to just reschedule for another weekend.
Where it's not a big scheduled party-room event kind of deal, I think it's totally ok in this case, and the smart move.
That would be my advice :) Hope he feels better soon.