I have tried other ways of behavior modification for truly difficult children and it just didn't work. If it takes the lovey to make him listen I would definitely use it as his currency. This is his time to really test the limits with you because you(and the whole group/environment)are new to him. Of course he's going to see how much he can get away with. If you show him you mean business right at the start, it'll be easier to let up a bit as he learns to listen better; thus earning back the lovey. Taking away a lovey might seem cruel but he has issues that you do NOT want to have him continue.
As Ariana has done, I also used a crib for separating a 'just starting to bite and hit' toddler. I didn't feel good about it BUT I also didn't want to send the 7 mo home with bite marks on his fingers. So I put the 17 mo in the crib while tending to others in the bathroom, etc. Sometimes I just can't be right there all the time.
IF this child was much younger, say 2 or so, I would try different tactics first but being 5 yo, I feel taking something away that's very important to him might be a key way to it working. Good luck!!