A birthday party for a 1 year old is more about the family/parents than the child, who probably won't be that bothered. So however long you want to spend entertaining other people, bearing in mind that some 1 year olds love company and fuss and some will cry inconsolably until everyone goes home!
2 hours should be ok. I'm taking DS to a 4th birthday party this weekend that will be 2h long - that's enough then too.
DS's 1st birthday party was just family though, and a good friend volunteered her services as a party entertainer (she was just starting out, so it was good practice and of course I paid her) - so it was probably longer than 2h all up, but no one noticed.