Do the loose balls and mallet need supervision?
Yes, as with any toy at this age, and here for a specific reason: the set includes loose wooden balls and a mallet. The balls are large enough not to be a choking hazard, but the mallet's long handle is worth supervising closely with younger children, and a child at this age tests everything with their mouth, and a ball rolling under a sofa is a ball that turns up later with a younger sibling. Count the pieces back into the box after each play session as a habit, and keep the toy out of reach of any infant in the household who has not yet reached the 12-month threshold it is rated for.
Is a first birthday a good time to give this as a gift?
It is unusually well suited to it, and this is a product a great many people buy for someone else's child. The difficulty with buying a toy as a gift is rarely knowing what the child already owns, and most popular toys are owned by everybody. A wooden pounding bench is common enough to be recognisable and specific enough that duplicates are unlikely, it suits a first birthday precisely, the hardest age to buy for, since the child cannot yet do much, and it passes the test that matters to parents: quiet enough to tolerate, made of wood rather than more plastic, and still in use a year later thanks to the slide-out xylophone stage.
How do I clean it?
Wipe it with a barely damp cloth rather than washing or soaking it. Wooden toys absorb water through the grain, which raises the grain and lifts the finish over time: a soaked wooden toy will look and feel rougher within a few cleanings. A quick wipe after use handles ordinary grime without doing that damage.
What should I check for as it gets older?
Periodically inspect it for splinters or a loosening bar, particularly after it has been thrown, which it will be. Wood is durable but not indestructible, and a cracked edge or a bar that has come loose from repeated impact should retire that part of the toy from use rather than being left for a child to find with their fingers or mouth.
My toddler just bangs the balls repeatedly instead of doing anything else with it. Is that normal?
Completely normal, and it is not obsession, it is a child confirming an experiment. Hammering is exactly the motor skill a one-year-old is working on, a whole-arm movement with a satisfying and completely reliable result: hit the ball, hear the note, every single time. Repeating it dozens of times in a row is how a toddler learns that the world behaves predictably, which is a genuine developmental milestone rather than something to redirect.
Will a two-year-old still find this interesting, or will they have outgrown it?
It should still hold their interest, because the toy changes with them. The xylophone slides out from underneath the pounding bench and becomes a standalone instrument played directly with the mallet, which requires aiming at a specific bar and controlling force, skills a two-year-old has that a one-year-old does not. So the object a child receives at their first birthday is not the same toy they are playing with at two and a half, which is the reason it tends to stay in use rather than being outgrown in a single season.