M.S.
For my son's 5yo friend, we made him a mix CD with songs from Bare Naked Ladies (their SnackTime CD has a lot of fun songs about popcorn, allergies, ninjas, etc) and from Steve Songs (he has a CD with songs about duck incubators, going to the beach, playing opposite day). We're told it was a big hit.
I've always loved giving events rather than gifts. Like zoo membership, gift certificate to fun things in their areas (indoor play areas, theaters, movie rentals, etc).
My son is #28 (out of grandkids and great-grandkids), so my siblings and I gave up on gift giving for neices/nephews long ago. Then once I married, I started sending bday cards to the ones living at home only, and also sent them to some of my husband's 2nd cousins (who are all young and practically like neices/nephews to him). In these past 5+years, no one from my husband's side has ever mentioned receiving the cards and I'm wondering if its a waste of money . . . .
Good luck!