I don't have a whole lot of experience with this so I will just give you what I have experienced. Most of my kids are young, so it's a lot of no, no, no, no. And they don't care either way. They love conditionally at that age.
But, I do have a 2.5 year old and he's shy and sensitive. He doesn't like to get into trouble, and I think he gets embarrassed when he does. I've had him for two months, and I have never had to put him in a time out for something he's done on his own(I put him on a time out with another DCB because they got into some of my papers and ripped them up). Today, when I was getting the babies up from their naps, I came down and there was baby powder on the little change table I use. (It's a leather ottomon, really, the one in my living room. And it's put diagnolly so I can stash the diapers and stuff behind. Sometimes I catch the kids trying to get in there.) When I had come down, her was lying on his belly on the ottomon, his hands and face in the corner, obviously playing with something. He's a very good kid so I just said, you know you're not supposed to do that. So he got up and left. Then he went over to the play area and laid on his belly. When I went to change the babies, I saw the powder. I asked him if he was playing with it and he said no. I thought maybe it has been there before the nap and I just hadn't noticed it. My son liked to play with baby powder. So since I didn't have any proof, I let it go. Then I asked him to come see me for some reason (I can't remember) and he has baby powder all down the front of his shirt. I said, "Why is there baby powder on your shirt?" And his eyes were like "oh sh*t". I said "Didn't I ask you if you had been in the baby powder and you said no?" He didn't say anything. "Are you allowed to play with the baby powder?" Nothing. I toyed with the idea of just giving him a lecture, but I've noticed lately that as he's opening up, he's starting to do normal kid things that he didn't do before. I know that if I am not firm from square one, he will continue to do things, and push the envelope because he knows there aren't any consequences.

I told him he knew he was not supposed to play with it, and that he has to be truthful at all times. This is a conversation we've had before. So I told him he had to take a time out. He cried a bit in his time out, and after 2 minutes, when I went over to talk to him, he wouldn't look at me and kept trying to hide his face. I asked him firmly to look at me, and asked him why he was there. I asked him if he was allowed to play with the baby powder and asked him if it's OK to lie. He gave me all the right answers, so I took his hands and asked him to get up and then I gave him a big hug.

He still likes me I find the firmer you are, and the more discpline you give for behaviours they know are incorrect, the more they will like and respect you. Kids need boundries and consequences. It's almost like they crave it, it seems. Like they feel more in control of their environment when these things are in place.

I say, be firm, discipline when appropriate, but show affection when they are being good and make a point to give them compliments every now and then.

Good luck