Is it any wonder that teenagers have so many behavioural problems and such a bad reputation when, instead of being held accountable for their behaviours when younger, we have all these sudo psychologists saying "oh poor lamb, don't be so spiteful to ickle johny or he might resent it for ever/you might be an unpopular parent." When what they're actually saying is "I can't ever bring myself to punish my children so I feel that children shouldn't be punished as they should see us as friends, equals, not authority figures, and that shit behaviour? Obviously there are always underlying reasons for it which we the adults need to take ownership of rather than teaching the little brats right from wrong."
The huge irony here is that there are people saying "oh, he might be being bullied, so you can't punish him," but what do you think the underlying reasons for the bullies' behaviour might be? The bullies shouldn't be accountable for their behaviour either then? No didn't think so, except the posters would want the school to be taking responsibility for the bullies. Now here's the thing, the DS in this scenario is the bully, and he needs to be taught that bullying is nasty, spiteful behaviour, that destroying something precious to another child has consequences.
If a parent came on here and posted that their nine year old had brought something cultural in for show and tell which had been given to them by a now deceased grandparent and the class bully had destroyed it, would people be calling for empathy for the bully? "Let's not villify the bully now, you don't know why he felt the need to be a bully..." no didn't think so.
I would cancel the party. In fact I would make it very clear to him that as a general rule, nobody wants to be friends with a bully, so if he keeps up that kind of behaviour there would be a very real possibility that the friends he thought he was having round this weekend wouldn't want to remain his friends anyway due to his behaviour. I would acknowledge the birthday but not a chance in hell would he be able to earn the party back. The item he destroyed can't be replaced. A birthday party is a one off event, once the time for it has passed, it cannot happen again. Lesson learned.