I think the thing people often forget about time outs is that they are supposed to be a "time out from the opportunity to..." Most people just stick the kid in a corner and let it go at that. But if the kid isn't bothered by that--if there's no opportunity being missed--then it won't work.
This is why time outs from toys or from playing work.
The other thing I usually do that works for us but is different from what most people do is to just have a child in time out until he calms down and can discuss his behavior with me rationally. This rewards self-control and penalizes overexcitement. Personally, I think the whole "one minute per year of age rule" is too hard-and-fast. If a kid has a bad moment, but calms down quickly and knows what he did was wrong, then why beat that dead horse? On the other hand, if the 3yo were still wigging out after 5 minutes, then he would need more time to get control.
As this strategy seems to have worked pretty well with both my Spock-like DS6 and my RE DS4, I think it's a pretty sound strategy.
As for the hitting...
Age 2+ is the hitting age, so while I would take the behavior seriously so that the child will take it seriously, I don't think I would be treating this as an emergency yet. It's distressing, but it's developmentally appropriate.
Because your son knows the words the teacher uses to tell him to stop hitting, she (and you) may think he understands that he's hurting people, and I suspect that's why she's so bothered by his behavior. But that assumption is not necessarily right. He is only 2! Being smart doesn't mean that a child comprehends the feelings of others any more than any other 2yo would. He knows the words, but I don't think he realizes that people hurt like he does yet.
I would stress that aspect--other people hurt, too, just like you do. You're causing pain. But be patient. He also doesn't have the necessary self-control to keep himself from hitting, even if he wants to. It's a process.
If you haven't already (and I assume you have!) I'd read up on hitting and child development for two reasons: 1) to put your mind at ease a bit, and 2) to give you some good ways to respond to the teacher's concerns. I think she's assuming he understands more than he does, and I think (subtly) pointing out that your son's behavior is developmentally appropriate, though still in need of correction, obviously, it might defuse the problem a bit.
The way we got through the hitting phase with our DSs was to take them to the playground a lot. Sooner or later he'll run into someone who hits *him*, and then you have the conversation about how it feels to him and that that's how it feels to others, too. In the meantime, you keep saying no and removing from his reach any potential targets--like you! At least, that's what we did.
But unless there is other behavior that indicates major emotional problems, I wouldn't let the hitting get blown out of proportion. He may be a smart kid, but he's still a kid, and they pretty much all go through this phase. From what you've said, he's not doing anything abnormal.
(And P.S. DS6 is back to hitting his brother when DS4 won't do as DS6 wants. As I said, it's a process...)
Anyway, I hope that helps!
I think your son has the bad luck of being in an abnormally calm and controlled class.
)--don't let them make a mountain out of a molehill. 2yos hit. You tell them no. They hit again. You tell them no again. Eventually they realize that it's a bad choice and they stop.