This is all you need. Really:
http://www.amazon.com/Setting-Strong-Willed-Revised-Expanded-Edition/dp/0770436595DS7 is pretty strong willed. We refer to DD3 as having a "titanium" strength will. She sounds like your DC a bit. Except we have titanium strength boundaries at home, so things are pretty smooth here. In a nutshell, the book outlines that you MUST be consistent with your boundaries because there are some children in the world who simply LOVE and need to always test the boundaries in their worlds. The trick is for you to maintain and enforce boundaries consistently without getting crazy. (I know, not easy at first.) One of the examples from the book (I think): when you get pulled over for a traffic violation, the cop doesn't (or shouldn't!) get upset and start whining at you asking why you had to break the law in the first place. The cop tells you why you've been pulled over, gives you a consequence and sends you on your way. No need to get tied in knots.
Your concern about your child's spirit being squashed: having worked with lots of kids over the years and with my own kids, a child is MUCH freer in a world with clear boundaries and consequences. With a child who is not used to boundaries and consequences, when rules are put in place, at first, the child will have a hard time. But once things stabilize, the child is so much happier and freer because he can just relax and do something other than testing boundaries 24/7. (Though a strong willed child will need to test boundaries every now and then - just because that's the kind of "research" they need to do.)
Get the book. Read it. Do it. :-)
BTDT
