T.,
I think the toy rotation idea is great! However, there are probably toys your kids don't play with anymore, and if your child is willing to part with them on their own, great! But some kids have a hard time with this dependeing on their age, especially if they are in the "mine" stage. So you can take some of these toys and put them in a box in the closet or somewhere out of sight. If the child asks where the toy is, you can "magically" find it for them later when they are asleep or otherwise distracted. If they don't ask for the toy in a month, you can safely get rid of it to Goodwill or a day care center. Other toys can be packed away if your older child(ren)is not playing with them anymore for when your littlest one is ready to play with them.
Of course the obvious thing to do is to limit the number of toys that come into the house. You will need to tell family and friends that your kids have enough toys or to only buy them toys for Christmas or their birthday, you might also have to use self-control if you are the one who keeps impulse buying toys for them. A good rule is for every new toy that comes into the house, one must go out. This will help control the problem once you feel you have it under control.