We went through the same thing with our 3-yr-old around his 3rd b-day. We tried everything we could think of (other than punishments, which I don't think are appropriate), but nothing seemed to work - even offers of chocolate if he went on the potty (I'm not entirely proud of that one!). Our son had been peeing on the potty for a while, but totally refused to poop unless we put a pull-up on him.
My husband was more frustrated with it than I was, and he ended up telling our son that once the current package of pull-ups was gone, that was it - we weren't going to buy any more. In the days before that deadline was coming, I decided to put his potty on a towel in the living room while he was watching his favorite tv show. I managed to convince him to sit there (I could tell that he had been holding it in for most of the morning). The distraction of the tv seemed to help, and he relaxed enough to let it out. Then of course I made a big fanfare about how wonderful it was, and we had a little parade to the bathroom to flush it. I did tell him that the livingroom wasn't really the most appropriate place for this activity, but luckily that never became an issue. Once he had gone once or twice, we didn't have any more battles over it. We didn't even use up those last few pull-ups!
It's so hard to overcome this kind of resistance - especially if you are trying hard not to make it into a big negative deal. I empathize! Our son has yet to make the step to pooping on the big toilet - he insists on the potty. It's not that big a deal, except that he'll hold it at pre-school. I'd be really interested to hear if anyone else has experienced this and what they did.
-S.