I've never had a live release party, but I did used to online release parties with some success.
The idea probably works better if you have a reasonably large following, though I did one as early as my second book, and it worked.
It doesn't require a venue or refreshments, so that's a plus, but it does take a lot of effort. I did mine as Facebook events and used FB advertising to promote them. The event itself is free, but the advertising would cost something.
During the time the party is running, the trick is having enough activities to keep people busy. A strategy I learned from someone else was to create FB pages for the major characters. Make them co-hosts for the party, and they can post comments just like real people. That means you can have Q & A with the main character and similar things. It also means that, if there's a lull in conversation, you can keep things going essentially by talking to yourself. (It makes the place look more lively for new visitors dropping by.)
Of course, prizes help, and that is another expense, but it can pay off. I had various kinds of contests, including book trivia. (The questions could always be answered from the Look Inside, so I could still fulfill the legal requirement that no purchase be necessary.) I drew mostly from the book being released, but I could also use questions from other books as well, particularly those in the same series. The idea, of course, is to get party-goers to actually look at what you've written. Even if they came for the prizes, they might get hooked. Digital prizes, like Amazon e-gift cards and gifted books, are the easiest to manage. (At least some of the other major online retailers also have e-gift cards if you want to give people a choice. This is particularly desirable if the new release is a wide book.) To spice up the delivery of the book trivia, I had some of the questions asked by the characters to whom they were related.
My first two seemed to be successful in terms of generating interest and helping early sales (in the days before I did heavy new release promotions). My third one wasn't as successful, and I didn't do one again. Looking back on it, though, I realize one of the reasons I felt more negatively about it was that I was sick on the day it was happening, and it seemed more like a chore than it had before. I may try it again.
If you want to run a longer party, that can be tough in terms of generating content. One way to deal with that is to make the party cross-promotional. Invite other authors as guest speakers. That works particularly well if someone else has a new release, particularly in the same genre, but the connection doesn't have to be that obvious. Each person fills a particular time slot and talks about his or her book, runs a contest, whatever.
