If you opt for the party, make sure you'd actually enjoy a big huge party with that many people. Your wife and all of your friends might, but it's *your* birthday--the event should be all about you. There are plenty of people who are introverts and would rather spend social time with a handful of close friends.
If selecting option#2 makes you a bad person I'd be hated by everyone I know. Why would feeding 20 people be better than buying something for yourself? Think of it this way, you are saving her $500. With that you can take her out to an extremely nice dinner somewhere else and still have cash left over.
Do what you want. If your wife complains tell her when its her birthday you will ignore what she wants and just do or what you want instead. Maybe you could being her to a Patriots game for her birthday and have expensive seats on the 50 yard line! She'll love that! Fair is fair!
You must still be paying off your Christmass credit cards. On my 50th birthday my girlfriend cooked me my favorite dinner and we rented a movie..on my 60th i forgot it was my birthday.. I suggest you take the $1500 and save it for her birthday.