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This is my list of absolutely necessary toys for kids from toddler up:

Blocks-all kinds
Dress-up items and accessories
A sturdy work table, such as a heavy-duty plastic picnic table
A wagon
Toy vehicles
A scooter/bike/trike
Access to old sheets and blankets for forts
Musical instruments
A few favored stuffed toys
Treehouse or playhouse outdoors
Mini-trampoline inside or outside
Balls
Kites
Puppets
An open-ended 'building' system you can add to-wooden train tracks, Imaginext, dollhouse, Legos, Playmobil, Geotrax, etc.

Before investing any money at all in a big system, find a way for your child to interact with the toys a time or two. Just seeing commercials or the box at the store is not enough.

You can organize their play space in 4-5 areas-blocks, dress-up, musical toys, vehicles and stufffed toys/puppets. A bin for the building system and also seperate blocks into wooden, plastic and cardboard. Those cardboard bricks that are actual size are fantastic fun, just get more than one set.

Finish out the play area with a large flat rug, a small dry-erase board and markers, a corkboard for art and a bookshelf kept stocked with minimal art supplies-paper and a shoe box of crayons and markers is perfect, a few good books and some space for displaying favored items of the moment. A small basket is ideal for keeping random toys-kid's meal goodies, odd men out gifts that don't go with anything else you have as well as toys that did not get put away with the rest of their kind. Go through this basket once a month or so and help your child sort what goes where and what might be given away or discarded from non-use. Don't allow anything space in your house, especially in the vital play areas of your house, that is not being used and loved.

There is no need for electronic toys, battery operated toys or anything 'popular' such as the latest movie toys. These are fine, obviously, but the more imagination that is required to play, the longer they will stay engaged. A "pre-destined" toys that fulfil a single role such as a movie character will lose its appeal. Toys like guns can only be used to pretend to kill someone or something else, so consider that before adding them to the dress-up box.

All this being said, one of the favorite toys in our house was discovered in the attic from my husband's childhood-a Sesame Street playset. I was lucky enough to find a companion set on eBay at Christmas one year and they both get loads of action. These are the 1970's/early 80's playsets, not the ones with Elmo.

My oldest collects Imaginext and has every set in the castle series. These take up the whole closet floor and we have an extra little bin just for the men and weapons. They usually never see the light of day, as Jake and every kid that has ever been through our doors set up one elaborate castle after another. It has been fantastic and had over five years of almost daily play.

The youngest has a Geotrax system that comes and goes in favor and a wooden train track combo of knock-offs, Brio and Thomas sets. They are out nearly all the time.

The girl has My Little Pony sets and ponies and brushes and things ponies should never have access to, like scooters, handbags and roller coasters. She also has a very nice and basic Fisher Price Loving Family Dollhouse that we add to on occasion.

Toys like these, that can be added to and expanded are worth their weight in gold. They become new again with each addition, or with a week or two of being put away, they do not hold any limits to what can be imagined and the free-forms of the building sets allow for whole worlds to be built and conquered in a single afternoon. Sometimes they are even conquered by ponies on wheels.

To keep clutter under control, only have out 2-3 of your bins at once, maybe the dress-up items can stay in another closet to be pulled out occasionally. The blocks can be kept in a closed bin in the corner of the living room or kitchen-wherever there is enough open space to stay busy.