Daycare behavior issues - what to do?

DS will be 2 next month. He's in the toddler room at daycare, which goes from 16-30 months. I get behavioral reports and complaints from his teachers often. Today I got one because he wasn't listening, was being defiant, trying to bite, hitting, tackling, etc.

I'm not surprised. DS does all these things at home, except biting. He says "no" to just about everything and rarely listens. We don't spoil him or ignore his misbehavior, but so far we haven't found any form of discipline that really reaches him yet.   Part of me feels he is too young to understand consequences. He laughs if you talk to him in a stern voice, he cries while in time out but does the same thing right after he is released, etc. I just don't know how to discipline him. I try to give him choices so he feels like he has some control, but he doesn't respond to my questions with anything that makes sense, so I'm not even sure he understands me. Tonight I asked him if he wanted to watch yo gabba gabba or take a bath (both activities he enjoys), and he just babbled in response.

I'm frustrated. I thought all this was normal, but daycare has me questioning that now.  Are they expecting too much? I feel like DS is the "bad" kid. He's not a rule follower by nature and is rather contrary and stubborn. I just don't know what they expect me to do and I worry he's going to get expelled.