we use the time out method and ds3 sits at the bottom of the stairs, ds2 takes himself to his bedroom and gives himself time out when he needs to calm down (he is 7)
interestingly my mum used the naughty step for my little sisted and it was the only thing that worked, she was a hugely physical child and could never be still even for a second so just the threat of having to sit in the 'naughty chair' (which was a fluffy blue chair and very cute and comfy) was enough to stop her from misbehaving.
ie when she was three she had to have an operation to remove alump from her foot, when she came round from the anaesthetic she was all drowsy etc and the nurses said to my mum that she may as well go get herself a drink, freshen up etc. so my mum did, only to come back 30mins later and find my little sister running up and down the ward driving the nurses into a panic, they didnt know what to do with her, said that normal children would still be sleeping the anaesthetic off and that she needed to rest her foot etc.
my mum looked at my sister and said, if you dont get into bed and do as the nurses say i will call daddy and get him to bring the naughty chair to the hospital, she hopped straight back into bed
she is 27 now and remembers the naughty chair fondly, it certainly hasnt scarred her for life.
i guess with all these things it depends on how you use them? for us we dont call it the naughty step, but we say that they need to have time out to calm down, think about their behaviour etc.
eldest is ten and dont use it with him anymore, middle two are 5 and 7 and it is still used with them, tho not that often.
little one is two tomorrow and we have yet to use it yet, but i am sure we will.
it can be effective and work if used in the right way