I had to have a sit down with my mom about this. She goes NUTS at Christmastime. My oldest DD's birthday is Dec 4th and my niece's birthday is today... so she spoils them rotten with birthday gifts and then buys a ton of stuff for Christmas as well. I think I've finally gotten the point across that the kids do NOT need every new toy on the market. It took me years to get her to stop going overboard for DH and I before we had kids as well. Like I need more junk in my house!
Anyhow, I very nicely told her that we want to teach our kids the real meaning of Christmas and not have them grow up greedy and spoiled b/c of this huge mountain of gifts. And then nicely requested that she give each child 2 presents to open. Well, I forgot to specify the size of the presents! She gave them each this huge gift bag that was bigger than my oldest (who was 3 at the time). It had about 25 different things in it - clothes, coloring books, puzzles, etc. So I had a chat with her AGAIN... this time not so nice. She's "allowed" to purchase them an outfit, no more than TWO toys and books (we encourage books!). Even with her list pared down that much it's still going to be a LOT of presents under her tree. There's DH and I, our 3 kids, my sis and bil and their DD, mom, dad and my grandmother. Oh and she has also agreed to buy a family present - zoo memberships or something similar.
As for stuff that either we don't approve of OR the kids just wouldn't play with... it stays in it's nice package and I put it up for next year's Toys for Tots donation. If the kids have to open it and play with it for 2 days and then get bored then I donate it... typically to the church youth group garage sale.