My daughter went to a fairly uppety little daycare, and believe it or not-the gifts were CHEAP!!!! Thank god. When I was a newbie, I toiled and picked out a pretty nice $10 gift for some little kid I didn't know (had 4 parties to attend that month including helping with one I was sharing for my daughter) and to my relief and surprise at the party, everyone (with older kids who had been through this a million times) had the $5 ones I had toiled through and 99 cent Store type stuff.
There are literally toys in the Target and Wal Mart toy sections that are priced under $5, and I believe they are specifically for these parties. It's INSANE to spend $20 at this age. Remember, your not just paying for that gift, you're paying for 15 to 20 gifts in a year. The kids do NOT CARE what kind of toys are in the huge mountain of toys. When I was writing thank yous to the kids at my daughter's party, the kid who gave the dollar store toy got just as big of a thanks as the kids who brought "big fancy gifts" ($9 sidewalk chalk was pretty fancy but could have been on sale for all I know with the clearance sticker remnants all over it-hope it was on sale!)
Now. If you will feel bad around the other parents, that's one thing, but I see you're in PA, not CA, so I think you're fine to do the cheap route until the kids are older and have real friends.
Oh, and the parties we went to, the kids opened the gifts there. Except one that was outdoors and a wind storm started.