Pinatas are fun. Blindfolded, dizzy kids madly swinging a broomstick in every direction is great physical comedy. As a game, though, it suffers from a fundemantal problem. If you win (you're the one to break the pinata), you lose, since everyone else gets to grab up the good candies before you can get
the blindfold off and figure out where the heck you are. The best strategy is to try not to break the pinata at all and hope someone else whacks it good. But if everyone pursues this strategy, then nobody gets any treats.
Some ideas that occured to me but that I discarded. Sound chips that make rude noises and/or insulting phrases so that you REALLY want to smash the thing (too expensive). Glue on the whacking stick, so that candy will stick to it (strong enough glue is just asking for trouble at children's parties). Put all the candies into indiviual bags, labeled clearly with each child's name (way too compulsive and controlling).
My solution is to make pinatas like Russian dolls, basically a pinata in a pinata in a pinata. Each layer had candies. While this doesn't give a successful pinata smasher an advantage, it does minimize the penalty for being the one to break it open: you only "lose" one round rather than the entire game.
Also, like Russian dolls, the series of pinatas should be themed for extra party fun. Some examples: Cookie Monster, Grover, and Elmo; Old Lady, Spider, and Fly; George Bush, Dick Cheney, and Kenneth Lay