I think a lot of what your saying is thoughtful and worth considering, but relevant mostly to kids at around age 10. Prior to 7, FMRI suggests that kids don't even have a real concept of empathy yet (which btw has profound impact on how you handle discipline, in directions I think you might find congenial).
But again we're talking about a 4 year old. It just shouldn't be controversial (or, worse, acrimonious) to suggest that the rules are different for preschoolers.
FMRI studies suggest that children prior to the age of 7 don't have a fully developed (or useful) concept of empathy.
Therefore, when your 4 year old eats your 5 year old's cookie, it isn't productive to demand that the 4 year be held to account for "how it would make YOU feel if HE ate YOUR cookie". It's confusing and irrelevant to the child.
Since parents for most of the last century have used exactly those words on little kids, I have illustrated a disagreement between me and a hypothetical parent, and resolved it with a very, very basic finding of developmental psychology.
That disagreement is not very relevant to whatever it is our disagreement is, but it does illustrate that the logic you're deploying isn't... um... controlling? here.
Incidentally, isn't it a little bit weird that I'm taking this side of a discussion against the author of the "Don't Fight" iPhone application? =)
The science states that they don't understand empathy until age 7. I would hazard an alternative explanation: it takes years of training to become empathetic.
I don't think morality is about empathy. I think the "how would you feel if..." arguments are bad. So I wouldn't consider this a significant problem, if true.
I don't know if you've read through my app, but I think you will find it's consistent with my views in general, and thoroughly fails to advocate empathy.
I would be more inclined to point out that if there is a disagreement about a cookie, it is in everyone's interests to use a truth seeking process to find out the right thing to do. Then everyone can win. With fighting, someone loses, and it will sometimes be you, and even if you win the other guy uses his creativity against you instead of cooperatively.
I think most of morality can be learned or deduced by applying empathy. Morality and empathy are closely related.
Like the Golden Rule, for example. Do I like being slapped? If no, don't slap. Do I like to be stolen from? If no, don't steal from others. And so on. Empathy towards others goes a long way towards being moral -- even if one has to "fake" it at times.
But again we're talking about a 4 year old. It just shouldn't be controversial (or, worse, acrimonious) to suggest that the rules are different for preschoolers.