I'm having the same dilemma for my DS' 2nd next month. But since it is less than 2 weeks away from my due date, I'm just having his playgroup at my house the week of his birthday and having some juice, fruit salad and a cake, and just having them play like usual, nothing special. The day of his birthday I'll just have a few close family members over for cake in the evening. My whole theory is he's only 2, and if I want to do something big for his birthday I'll just wait until he's old enough to really understand what's going on and remember it. Or maybe I'm just telling myself that to not feel so guilty for being so tired and not doing a whole lot.
We did b) but that means 8 adults, one baby and one toddler anyway (plus us) ... and then we invited two families who are our very best friends so that added four other adults and five other kids. Felt like quite a big party anyway - 14 adults and 8 kids in total if my maths is correct. Would have been another two adults and two kids if dh's sister had been able to come...
Children varied from three months to eight years so I had the same concerns about games. Ended up not doing any - they had a fab time playing with ds's toys anyway (including things like an easel with black and whiteboards, those garden tunnel/tent things, sandpit, so plenty for older kids to do). My major headache was party bags - ended up doing individual ones with child's name on and age-appropriate stuff in.
Went to my nephew's 2nd birthday recently, it was lovely - sis and BIL just had grandparents and me and Uncle DP and our baby ds (other uncles and aunts live too far away). We had lunch and then swiss roll cake for tea. DN loved it, esp when we sang happy birthday to him - he was overcome with emotion and burst into tears (sooo sweet!).
It was a lovely day, no pressure and only one lot of tears (and that was only in the way that an adult might cry at a surprise party iyswim).
yesterday it was... a family tea (nuclear family only, we have moved away), the usual ceremonies with presents and photos and cake, a trip out for DS3 to spend his birthday money, and on Saturday my Uncle happens to be holding a huge (my family is huge- my Dad is one of 16) barbecue which we are all going to.
TBH we made more of it for the others, but the barbecue was well timed and no-one could get here.
It was last Sunday, and we invited our friends kids who are mostly older, and cousins who also are mostly older. Ds had a ball, as he adores the older kids, and they did too. I did some games with them in the garden, and we blew up the (biggish) paddling pool, and the 11 and 12 year olds were having as much fun as the tots.
Met up at the Museum of Childhood with all his friends--they all ran around for an hour or two and then sat down for cake. DS didn't really understand that it was his birthday, but boy had that changed by the time he was 3!
Just to add that whilst I agree with some of the posters that it is not necessary to do a party for their 2nd birthday, I disagree that they don't get much out of it if you do opt to organise one. And dd still remembers her 2nd birthday party now.
(A couple of weeks ago she had her 3rd birthday party - similar to last year)