I got DS a cheapy Tesco one (about £3 I think) - it's 8 inches or so, just right for a 2yo, nice soft body for cuddles, makes noises when her tummy is pressed. And you can buy outfits and accessories if required. He loves it.
Our DD who is now almost 3 has had several lovely dolls since she was about 18 months. Rather expensive, but we love the large Rubens Barns ones (look similar to cabbage patch but nicer IMO), plus a small little girl doll from Paula Reina (Dasha) and also a lovely anatomically correct baby boy doll from ELC that was £20 and is a really nice baby doll - if you like very, very realistic dolls. I love the Dasha doll though - it's a lovely smelling (vanilla) doll with beaitiful finisha nd great clothes. It has very pretty hand painted features includsing freckles and realistic hiar/eye lashes. It's eyes stay open but I thought that may actually be best for a young child as they tend to poke them in if teh eyes open/close! Paula Reina and Rubens Barn also do anatmically correct and ethnically diverse baby dolls as well.