Time out itself is not supposed to be negative - it is a time out from positive reinforcement (eg. play, attention). When you put a child in a time out for example you are not making the time out chair a horrible place, the punishment comes from the fact that they can no longer participate in desired activities.
Try using your concept with your dog when playing. You are in control of the toys and playtime. Dog nips, you take toys and go away. the dog can no longer participate in what it wants to do. Consistency does work and sometimes a behaviour gets worse before it gets better.
Lavenderott had a good suggestion. I think maybe you don't really understand how its not a reward for biting. Dog nips--you yell ouch!--dog stops (this is what you want)---give a toy which is actually reinforcing the fact that your dog stopped biting you and now you are teaching what is acceptable to chew.