I understand your concerns. It may not be when he is in time out, but it still seems to be following a pattern. For example, he is not allowed the crisps that means he is upset with you. Just like with the time out he is upset with you and wants to get your attention for you to feel bad and take him out of time out. As with the chips he wants you to feel bad for not giving you the chips and therefore change your mind and give it to him. He is very smart and playing on your emotions. I believe it is not wrong at all to be empathetic. It is the best thing you can do when you are disciplining. Of course you are not going to be like that all the time. You will have feelings and show him love and affection, but its just at the disciplining time. Don't let him play on your emotions. The best thing you can do is when he says anything disrespectful to you is to put him in time out or take something away from him that he likes. Let him know that you are serious and whatever he says is not going to change your mind. In a few weeks he will get it and be on the road to change. You just need to be consistent with it. If you let him get away with it now then it only gets worse. Trust me I have seen it happen time and time again. Then when they are older they are even harder to discipline and change. Now is the prime age. They understand everything and know how to play on the soft spots. Now is a crucial time. If you let him get away with it then it will get worse, but if you stop it now he can change and not do this in the future and avoid getting worse. If it gets worse then as a teenager he will walk all over you and do what he wants. It does not change by itself. But it is not as difficult as it seems. Just be consistent and don't let him play on your emotions. You will start to see the difference very quickly. He just needs to know that you men business.
About what he says about he is nasty because he does not share. He could be being oppositional. Some children have that nature. For example they know that you do not like that, so they say that is what they are. For that just say you are not nasty, but it is not a nice thing to do when you do not share. It is important to share with others because we like when people share with us. Ask him how he would like others to treat him and explain why we must treat people how we want to be treated. When he talks like that you can use it as an opportunity to teach, but when he says anything disrespectful to you put him immediately in time out or take something he enjoys away.
I have seen many parents in this situation and the thing they all had in common was the consistency with the disciplining and feeling bad and giving in. When they fixed this they started on the road to recovery.
Stay positive and just do what you need to do in those situations. When he makes you feel bad remind yourself that you are helping his future and if you give in then you are just hurting him in the long run.
Again, I wish you all the best and if you ever need me in the future you can always request me in the title line!
It was good to hear back from you and hope I was of help to you.