Thanks to all for your feedback. I absolutely agree that positive feedback is the key, and is the most important, as well as trying to understand (apparently a lot of 2/3 yo frustration is trying to learn to communicate).
We only deal with inappropriate crying the way I suggested.
I think everyone (even adults) really blossom when they have positive reinforcement, and I don't believe you can do too much of that. So for us its about 98% positive encouragement and 2% tough love. It seems the perfect balance for DS as he is outgoing and confident. (Maybe boys push the boundaries earlier than girls?)
Must say I had (and still have) a huge battle with MIL over the encouragement thing. She says we will "spoil" DS and give him a false sense of his own worth (eg if we praise him for trying something even if it does not work). My reply is that I can see how he flourishes when encouraged (as we all do).
Also DH made a point early on of encouraging DS to try and work through frustration (eg try again if the toy didn't work quite right). Also we let DS know that sometimes in life things just don't work out quite the way we want them to (sometimes the toy just does not work). And then empathise and say "Yes, it is frustrating when it doesn't work, but sometimes in life that's what happens" (not sure how much of this he understands, but it seems to cheer him up).
It's true what you say about communication, though. I heard somewhere that the "terrible twos" can be a product of trying to communicate something, but frustration at not being able to. If DS is frustrated I get down at his eye level, and ask him to try and tell me (with words, or signs or pointing - and he has a pretty good vocab, so this works well). Then repeating his view point back to him REALLY helps eg "I understand that you don't want to go home from the pool, but we've been here a long time and it is time to go. But we will come back soon". Just telling him that I understand or know how he feels seems to reduce his frustration by 90% (I didn't believe it when I heard of this technique, but it really works). Also, I praise him for explaining so well, and tell him how easy it is when he can find the words to tell me - this has really encouraged him to expand his vocab in really helpful ways.