Hi Sally,
You've chosen to reward with candy, and your child is meeting your challenge by overly controlling his urine. Yes, you are right, he's absolutely doing this for the M&Ms. I posted earlier on your last question that rewards are fairly problematic; this is one of them.
I'm sending you a link to a great toileting website. Please read this.
http://www.betterkidcare.psu.edu/AngelUnits/OneHour/Toile...
I've used this philosophy and method successfully MANY times. You've got the 'no diapers' thing right, too. If you can stay away from Pull-ups, half the battle is over.
The most important thing, in my opinion, is that *the child* is self-motivated to use the toilet and to stay dry. Keeping him in underpants during the day, so that he experiences being wet when he goes, really helps. Associating getting to the toilet with staying dry is the best 'reward' a child can have.
I'd also say-- please don't be discouraged if your child seems like he isn't really ready on his own yet. Some kids, especially boys, take longer than others. (I'm not saying if he is or isn't ready.. the readiness assessment in the link I sent can help you ascertain that.) That said, what we do know about potty training is that kids who aren't as ready will take longer to learn than kids who are ready. They're just ready when they're ready. I hear universally from mothers that this is the most infuriatingly frustratingly true piece of advice they have ever received. (I actually asked a question on it months ago, about advice received about potty training.) Good luck.
Oh, and in answer to your preschool question: ask the teachers what they would like to do. It can be problematic in some environments to offer kids candy, especially selectively. My preschool had a no candy rule as a whole and I encouraged my families to let nature take its course at school. I'm much happier to help a wet child to change their clothes than I am explaining to other children why only one kid gets treats.