JKS - I bought this castle for A nearly 2 years ago now. It was £24.99 (still is at the moment) and packs up quite small into a box under his bed when he isnt playing with it. I went down exactly your route - accepting the inevitable cheap-and-cheerful-might-not-last-long position (also didn't want to buy a 'big' gift). It has lasted surprisingly well, he's had plenty of play value out of it, but equally I don't get fussed if it doesn't come out for 4 months at a time.
Transformers, on the other hand....well........are stupidly expensive; none of them 'do' anything interesting & none of them are as cool as the adverts; the ones that a 6yr old can convert on their own look like shit, and the ones that go from a racing car to a robot take a degree in bio-mechanics to change, and always lose their bits as the guns etc don't stay in well. Leading to tears and tantrums and (again) limited play value. A has 7 or 8 Tranformers, of various levels, and barely plays with any of them - we stopped buying them a while back, these were gifts from friends/family. DH is heartbroken as he had all of them as a kid (parents owned a toy shop [jealous]) but even he thinks the modern ones are shite....
On the dolls-house for Mary front, can I suggest this one? We gave this to T, with all the pieces, at 22 months, and she has played with it solidly for nearly 2 years :) Again, £24.99, so a reasonable amount to spend...
Of course I remember Nathans yellow bus 

Mia is very into all the cars and trucks we have around the house, but we do already have loads.....she's also becoming quite attached to T's dolls, so I may get her her 'own' doll for channukah :)
Oh, and in the big news of the day.....Mia is now walking!! Hurrah! She's been toddling a bit for ages, and has never really crawled, but she is now properly walking around....so, at 15 months, the youngest of my dcs to crack it, and nearly a full 12 months ahead of Tamara! Weird, huh?!