L.B.
I think Ana offers some good insights.
I too am using the 1-2-3 Magic method, and it does work well for the most part. It's tough, though, when you are in public to implement the time out. I would keep at it. I also found when my son was 3 and had a melt down, if I responded in a positive manner ('I think you need a hug now') it would calm him down pretty quickly. Also, what you say about spanking definately is true; all spanking teaches him is that the bigger person wins! I found that if I spanked him (one swat on the bottom) his behavior actually would get worse, and it seemd to me that the incidences of him hitting me increased. I made a 'deal' with him that I wouldn't hit him and he wouldn't hit me. For the most part, it seemed to work.
Transitions are tough; hang in there!
PS My son has been in a Montessori program since he was three and he has really thrived in that environment...