I would urge you to not back off at this point. In my experience it only made things worse. My 5 year old step son was diapered exclusively in disposables and then started pull-ups at age 3 and still had no interest in going anywhere but in his diaper. I think that he was so effectively "trained" to go in his diaper it made it very difficult to change to using the toilet after doing it one way his whole life. He would also hold it until he had a pull-up on and then go in his pull-up. We were waiting until he was "ready" but that time never came. We eventually did the following: Put him in underwear (or cloth training pants) all the time so he could feel when he wet himself. We took him to a therapist at the age of 4.5 because we were at our wit's end and he still wasn't potty or poopy trained. He never reached a point where he "chose" to do it or said that he wanted to be a big boy and it was either "make" him use the toilet or forfeit him being able to go to kindergarten. (which in every other way he was ready for). On the therapists advice, we started using a timer and taking him to the bathroom (against his will) at regular increments. He fought it at first but then it didn't seem to bother him after several days, as it was a new routine. (although he did grow to hate the timer, which we eventually phased out and replaced with us reminding him to go) For a month we used a timer to remind him (and us) to take him to the potty every 45 minutes (with much protest from him). we did this very strictly for about 2 weeks and he FINALLY he started being able to feel when he was about to pee or poop. So exciting after a year of potty training with no results! about 4 months of "potty rewards charts" (star sticker charts that lead to a big toy like an action figure after he gets a certain number of stars) sealed the deal and he is now potty trained. The BIG rewards were the only ones that really worked with our son. sometimes he still has trouble getting to the toilet when he poops still but he is doing much better and not protesting the toilet at all. For awhile we thought he had absolutely no feeling of when he was eliminating, so it is such a relief to have him on the right track now. With lots of positive reinforcment, he is finally getting there. But it has been a big struggle and I wouldn't wish that kind of delayed potty training experience on any child. I think it affected his self esteem greatly, even though his parents were giving him a lot of positive feedback and trying not to make him feel ashamed when he had an accident.
There are lots of training pants out there that are made of cloth. You might want to give something like this a try so that he can feel his cues better. Otherwise there's no way for him to make that connection to his body since diapers and pull-ups send him a different message, that it is "okay" to go in your pants. I firmly believe that the disposable diaper industry has way too much sway in influencing the ways that we teach our children how to take care of their bodies.
Because of our experience with my stepson we have decided to use a different approach with our 11 month old daughter. We practice Elimination Communication with her and we really love watching her enjoy using her own potty and giving her the option to have better hygiene and learn to communicate when she has to go. I checked out a book on EC from our local library and some of the EC techniques helped us potty train my step son as well.
The conclusion I came to through this whole experience was that it is up to the parents to decide certain things for their children that are in their children's best interests, not the other way around, and I think that potty training in a timely manner is one of those things. Just as I wouldn't let my kids go without brushing their teeth or staying up as late as they want, I wouldn't allow a child to continue to soil him/herself after they are capable of communicating their need to go, just because its not good for them or their bodies. I feel that the fad lately has been to "wait until the child is ready" but for us, this attitude just set up our child for getting out of touch with his body and I believe it created more of a power struggle for us as well. Maybe it works great with some kids, but not ours. I don't mind potty training our daughter again in the traditional way if she gets a mind of her own and starts fighting the potty later on. But I feel that we are giving her a good foundation for potty training by teaching her to listen to her body early on and that makes me feel like at least we maybe learned from our mistakes with delaying potty training with the first child.
Here is some information on elimination communication if you are curious:
http://www.diaperfreebaby.org/