Terrible Twos? More like Atrocious Threes!

Bodhi turned three last month and has been trying my nerves ever since. He is so mouthy and rude and sometimes I wonder how I am going to make it through the day.
Yesterday I took him to a church friend's 3-year old birthday party. He did well until the first meltdown. Let me paint the scene for you. Everyone gathered in the living room to sing happy birthday and once it was done the father of the birthday girl tells all the kids to "go back into the living room and grab a seat and we will bring you a cupcake". Seems innocent enough. But Bubba doesn't quite comprehend this. He runs into the living room and grabs a chair. Not sit on it, but literally grabs a chair and starts carrying it back to the dining room. I tell him that he doesn't need to do that, he just needs to sit in the chair. Well, you better not get between my son and a cupcake, because he starts yelling at me, "Go away mommy" and pulling at the chair to carry it away. I try to talk to him and explain what is going on, but he doesn't want to hear me. He just yells and starts to hit me. So I promptly pick him up and carry him outside. I get him to calm down and try to explain that if he sits in the chair a cupcake will be brought to him. He settles down and walks back into the house, sits down and within seconds is given a cupcake. Crisis averted, until about 10 minutes later.
After the cupcakes are finished, the mother of the birthday girl announces that it is time to unwrap presents. I look at my watch and its almost 5, so I think this is a good time to exit. Well Bodhi doesn't. He starts yelling "No" and "Go away mommy" at the top of his lungs. Birthday guests are staring. And again, I carry him outside, we talk, he calms down and we proceed to say our good byes.
So was it the worst afternoon of my life? No of course not, but I don't know how to handle his talking back to me. Later when we get home, the talking back continues along with the hitting. I can put him in time out, swat his butt, take away his toys, and he continues to talk back. But the real problem is with me. If I can remain calm and not react to his outbursts we are fine and I can handle it and he eventually calms down. But when I start acting like a 3 year old and yelling at him to go to timeout or spanking him (which I hate!), then I feel bad, he is upset and we all got nothing out of the experience.
And now that I am pregnant again, I wonder if I am even capable of raising children and wonder why we wanted a second one. But then he hugs me and kisses me and has completely forgotten about the last 10 minutes and I remember just how much I love him and that I should never ever forget about these moments when he is hitting me and telling me to "Go to timeout".