We do a variation of the want, need, etc.:
1 set of PJs opened on Christmas eve
I try to get the grandparents to coordinate with the toy. For instance last year I made my son a cute play kitchen for about $20 (picture here
) and got the grandparents to chip in with play food as a gift.
I really, really think its important to put the focus on other things at Christmas (giving, traditions, baking, etc.) and to keep the gift giving to a minimum. I see the presents as icing on the cake, not the main meal. I'm also not a big believer in wish lists - I think it puts kids' heads in the wrong place and makes it about getting stuff. My mom had a rule that asking for something specifically was a sure way to NOT get it. We learned not to ask for anything and to always be grateful for even the smallest thing. She was always great about finding cool stuff that we didn't even know about and now as an adult I really appreciate though thoughtfulness of her gift giving.
I also agree to scour Craig's List and thrift shops. One thing I do with my son is take things out of the packaging before I give them so he doesn't have a concept of "new in the box."
I vote for getting something that will get the most play value, not necessarily the big "wow" present that looks good under the tree or will have her jumping up and down on Christmas morning. If money is tight, you can't afford to spend money on a toy that looks good but will languish in the corner after a few weeks. Presentation can help dress up a boring gift - a homemade art tote filled with inexpensive supplies is more cool than just another box of crayons, etc.