Yes, saw this challenge on another thread...
I think it entirely depends on the child. If they couldn't think of anything worse than a room full of people, then let them have a small party. If they want to invite the whole class, why not?
We have 30 as DD has just started a new school and I invited the whole class. She is on SEN register for social skills as she struggles to relate to her peers and is quite shy initially. The reception teacher helped her give out the invitations and it has helped break the ice with many of the children in her class. And DD is thrilled that so many of her 'friends' are coming.
Another angle is that a girl recently invited only 4 girls from the class and everyone else was upset they'd not been invited. DD has already received 2 reciprocated invites but her best friend in the class has not received them and wanted to know why no-one liked her.
I know that it's upsetting for children not to be invited and this is inevitable in latter years. But the non-invited children are being given the message they are not someone's friend - when at this stage in the school year and in Reception - they have not yet been given the chance to become friends. Next year I intend to just invite those she asks to invite, but they will have all had a better chance to form friendships.
As DD needs help with social skills, I also wanted to teach her that it's not always kind to be exclusive.
I think it's something that depends on the age of the child. At DS's 2nd birthday party there will be 8 children at his party and I have hired a hall so they can all run around in a large space. The 8 consists of children of our friends/ godparents who he will grow up with - there will also be grandparents and other important family there to share the day with him.