The American Girl dolls are much better quality than the Walmart/Target dolls. I would say that I have to disagree with the PP on the age thing just from our experience. Thanks to our niece, DD saw an American Girl Catalog when she was 2 and fell in love with Felicity (now discontinued) and for 6 months insisted that was what Santa was going to bring her and it was really the only thing she absolutely wanted for Christmas. Santa brought Felicity. DD was not quite 3. DD is 9 now and Felicity is still in great shape and has been joined by other AG friends. From age 2 to about age 6, DD played with those AG dolls and their accessories and furniture constantly. They were the primary toys she was interested in and we definitely got our money's worth. Most of the girls her age had AG dolls by age 4. Sometime before DD turned 7 the playing with AG dolls slowed down considerably. At 7, her friends were no longer really interested in playing with them when they came over. DD played with them here and there, but not that much. DD still puts AG stuff on her Christmas list, but at age 8 and 9, she really no longer plays with them that much. As expensive as they are, I am very glad she got them young and they got a lot of play time. While the Walmart/Target dolls are not nearly as good, we do have some of the accessories/furniture from those and it gets played with. If price is a concern, I would try to go with the AG doll (you can sometimes get really good deals on Ebay on ones that look new), and do the furniture and accessories from the cheaper stores.
Also check EBay if you decide to purchase one, as there are often new in box dolls on there for same or cheaper price as the original retail price. For additional outfits and accessories, check Etsy too; lots of adorable handmade things there for the dolls.
