These prolific, versatile collaborators ( Dinosaur Dances ; the Commander Toad series) here offer a disarming tale, populated by a cast with all the zest of the best nursery rhyme creations. Fashioned from bits of hay, Mouse's house sits in the corner of a barn. It is ``very small, very small. Hardly any room at all / For anyone but Mouse.'' But on the tiny creature's birthday, some nattily dressed visitors come bearing an amusing array of gifts, and--delightfully implausibly--all manage to cram into the diminutive dwelling. As Cat, Dog, Cow and Horse snuggle close to Mouse, ``In comes Farmer on his knees, / Carrying a brown valise, / Trying very hard to squeeze / Into Mouse's house.'' The overcrowding ends the second that Mouse overzealously blows out the candle on his cake, causing the sides of his house--and all his furnishings and gifts--to fly into the air. As the hay settles, the startled guests kick up their heels for what turns out to be a dual celebration. Typically spirited and endearingly humorous, Degen's art is the ideal match for Yolen's jaunty rhyme. The alternation of large-scale likenesses (in sprawling, borderless paintings) with smaller, neatly framed vignettes proves beguiling--and utterly appropriate. Ages 3-6. (Mar.)