Isn't it amazing that some people out there are such great parents that they worry about such trivial things! Congratulations to you! I, myself, have been through the same thing with my 2.5 year old daughter ... the stubborn little monster!!
PLEEZ.. take my advice. The only thing you can do is leave him alone. Right now, it's on his mind all the time ... he does it (by habit) and then has to worry about the punishments ... that alone is probably making him "nervous" (in a 3 year old way), which is causing him to do it more! Pretend the "problem" doesn't exist, and in a short time, he'll probably stop doing it on his own. Also, try giving him something to "replace" it... buy him his very own special biting rag. You can get a wash rag with some super hero on it ... power rangers, spiderman, spongebob, whatever he's into ... and show him that it's ok to chew on it whenever he wants. He can even sleep with it. And remember, after he does stop the lip biting ... he's entitled to a really special treat, outing, etc.
Good luck, and remember, if he's otherwise loved and healthy, this is something that will go away in time. Keep the faith and love your child. He'll come out o.k.!!
Once again, thanks for being such great parents. It makes the world a better place for all of us!