Winning is winning and losing is losing. Kids need to learn this lesson whether it's playing a game with mom, on the playground, or at a birthday party. Perhaps you could have prizes for the winners and party favor bags for everyone. Another thing you might consider is making the prizes for the winners something perishable like candy. That way, it will likely get eaten right away and likely quickly forgotten by all.
Life is a lesson.
However, if your spouse feels differently than you, out of respect, I would find a solution that you both agree with. Party theme I agree with kay. I agree, everyone should get a prize. Parties aren't the place to teach the lessons of losing. In my opinion, everyone should get something.