Choosing kids party prizes can be a bit tricky, at least that's my opinion, you don't want to be seen as trying to outdo the neighbours, but you do want the party to be a memorable one, I mean it's all about the kids and not at all what the other parents are going to think of you. My take on it is simply keep the prizes age appropriate and in line with the theme of the party. If you are having games and you want to recognize the winners, how about getting some Olympic type medals on a ribbon, for first, second and third place?
There are some pretty neat yet very inexpensive pocket money toys that most party supply shops do and quite frankly, the younger kids just simply want a prize, not a statement. On that note, once you start awarding prizes at a young kids party make sure that everyone there eventually gets one, you don't want to leave anyone out at that age, you could scar them for life! One way to see that everyone gets a prize is to award prizes for participation, for instance everyone in the sack race gets a Dr. Who sticker set, or if it's an all boys party a set of Disney cars would be awesome. Disney cars Bubbles work well too of course.
If you're having a beach party a good idea for prizes might be inflatable beach balls, that way when the structured games are over, other beach games can begin. Have some beach hats as prizes too, most kids and some parents won't think of the sun damage, so hats, sun glasses and yes even sun screen can become party prizes with a purpose.