I know that lots of people will agree with this approach, but I just want to add a dissenting voice. I think naughty steps, bribes and reward charts are not 'real' consequences and it just teaches people to hide how they really feel and to behave just so that their parents with reward them with random unrelated treats.
I do agree that it's a frustrating time (I have a 3 year old), but they are just finding their feet. I think that the less we say no the more seriously they take it when we do say it. In the real world we don't get stickers for being nice to people.
Even though there are ups and downs, I think that the only thing we can do is to help them express how they feel while explaining why what they are doing is not the way to go - sometimes it works sometimes it doesn't. But distraction does still work for us particularly if we catch it on time and if he wants to be upset about something distraction works afterwards to clear the air - bubbles for instance worked today after he had calmed down. Not holding it against him and keeping really calm myself while not completely cut off from him also helps. It's not personal.
I also find that he needs lots of snacks particularly in the afternoon, even though it seems close to dinner and lots of hugs and individual attention. He's big into made-up stories at the moment. He's quite bossy at the moment too and so I let him tell me what to do when I can so that he feels some control - e.g. no your not a monkey you're a buffalo, no you stand there mum. I think that at playschool he is probably having to experience being bossed around himself!
If I put myself in a child's position I would be soooo angry at being put on a naughty step. Yes eventually I would learn to put on a sweet butter wouldn't melt face, but where does that anger go?
Anyway that's just my view.