how do you discipline a 2 1/2 year old?

time outs, spanking, redirection...depends on the cercumstance really.

Time outs work for our son. One minute for every year of age. We even do it in public (like at the park) when necessary. We also redirect. We DO NOT believe in spanking.
Also, when we're traveling, out running errands, at a restaurant, or somewhere else where he may get bored and misbehave, we bring plenty of snacks and toys to keep him occupied. It's really helpful! We also make sure to pay attention to him here and there so he doesn't feel ignored and decide to misbehave to get attention.

Time outs for things like back talk. I reward for things like cleaning up toys and eating. (my son is 27 mo) If he refuses to put toys away before bed and I have to do it, they go in time out until he shows me he deserves them with good behaior.

You don't. LOL 2 year olds are HARD!

well when my dd says "no" to me...i get down at her level and say "you NEVER say no to mommy, yes ma'am?" very firmly. (we're teaching them ma'am and sir) then i sit her down for a little bit. if she keeps at it, like i tell her to do something and she keeps telling me no, the girl gets a spanking and she has to sit until i tell her to get up. every time she talks, tries to get up, ect., the time starts over again.

My ds is 3 now and I have decided to lean toward the "Unconditional Parenting" approach more and more as time goes on. The idea is throwing out the "reward and punishment" mentality and really feeding the relationship with respect and modeling.
This makes even more sense to me because my DS is a VERY willful and determined little guy, so if and when I have pulled the "NO!" kind of approach, it just creates MORE conflict. I've done MINIMAL time-outs, (1,2,3 Magic approach) but never leaving him alone for time out. At worst, its been in a chair in the living room and we worked on getting him to sit in the chair for the full 2-3 minutes. I used that to curb hitting, pushing, etc...
Otherwise, some things I have just ignored so he doesn't learn that it gets a response. At this age, most of what they do that is "naughty" is to feel powerful...and when we get mad...BOY does it work!
They are all impulse and limit pushing

I normally give my son a couple warnings (depending on how bad he's being he might get one warning or it might be 2 or 3) if he doesn't listen to the warning he sits in time out and for every time he gets up he sits there longer and he knows he has to wait for the timer to go off. when he is really bad i send him to his room and on the rare occasion he does get a spanking. I try to talk with my son because I feel that he understands enough of what I'm saying to get what i'm saying. He definitely has been testing me because he is about 2 1/2 yrs but it's more mentally draining on the parent than anything and you just have to keep up with it