I don't believe in punishments, actually. Not the ones you set up.
Ya know, I read somewhere once, and it really struck a chord (my DS is reeeeeeeeally challenging lately, with living at MiL's and her arbitrary rules and toing and froing between the farm and her place, to settling into here and starting kinder), that when you think the child least deserves a hug is probably when it is most needed.
Setting up an oppositional relationship will backfire at some stage. It doesn't mean you're 'soft', as in 'weak', it just means you are 'soft', as in, compassionate. I decided a little while ago that I'd prefer to be DS's soft place to land. I don't bother with withdrawal of toys, privileges etc, because I remember those feeling as good as a slap in the head, when I was little, and I clearly remember them doing nothing to instil any sort of respect, let alone a 'lesson'.
Alfie Kohn (you can google his articles) goes through the con of rewards and punishments really well - well worth a read, and bases a lot of his work on Parent Effectiveness Training.
You're not on the wrong track to have your heart tweaked by compassion - if you feel bad about it, then your instincts are telling you something