I've just done a party (last week) for my 3 year old ds. (10 children in total)
We hired a hall. This hall is also used by a toddler group I go to so I asked if we could borrow some of the toys.
I decorated the hall with a few balloons and a banner. I put out the following toys from the toddler group:
A toy kitchen with play food/pans etc
A few ride on toys (2-3)
A couple of buggies
A box of train track and trains
I also had two tables set out, one with playdoh - I took some of ds's and bought cheap playdoh and a couple of cheap cutter sets from woolworths. On the other table I put out some paper cut into crowns which I had cut in advance with loads of sparky stuff (tin foil, stickers, glitter glue pens etc) with colouring pens and tape so they could make their own hats (with help) if they wanted to.
These toys and the tables (the playdoh was very popular)kept them entertained for about 50 mins. We then played pass the parcel and pin the tail on the donkey. After that we had the tea (I made the food and brought it) and the cake. The whole thing was 1.5 hrs which was plenty and everyone had a really good time.
I agree that softplay can be a bit overwhelming but a very structured party ay this age can be a bit much for some children. I aimed for something in between and it seemed to work quite well.
I had a bag of small prizes for the games and the best/most sparly/most pointy crown (everyone who made one got a prize) etc.
The main thing with this age is not to expect them all to play the games and if they do play they need adult help. The toys and the craft stuff was enough really but a couple of games make it nice.