our oldest daughter's first bday was the same - mostly just our friends and only some of them had kids. it was summertime, so we just set up the baby pools and the kids (and some adults - it was hot!) played or waded in them. we didn't do games, but i kind of wish we had.
i wasn't sure if you meant the kids' ages were 1-5 or there were going to be 1-5 kids there. either way, what about a good old-fashioned game of pin the tail on the donkey (or some variation of that)? that covers most ages. gift bags are a good idea - the dollar store has little things to put in there without getting too extravagant and you could get mostly things that kids of any age can play with. or you could go with simple treat bags - no toys, just edibles. i know, i dislike getting a bunch of gift bags with little trinkets i'm going to find all over the house or broken a few days later. why not fill the bags with fruit snacks or candies or whatever? just a thought. :)
for our oldest's first christmas, we asked everyone to forget the actual presents and asked them to just contribute to her savings (we weren't in a position at that time to give regularly to hers, and she really didn't need a billion gifts from everyone that she wasn't even going to know were there!). i think asking for no gifts is fine, especially if she's got a couple to open anyhow.
have fun! good luck! happy birthday to her!