Sorry long response - I worked in a behavioral health clinic (inpatient) for children ages 2-17 for about three years. I learned A LOT about discipline and what consistently works and what doesn't with kids. These kids, mind you, were at the point where they had been removed from their homes for a short period of time (usually 2 weeks) so their home life, behavior, nutrition and diet, medical status, etc etc could all be evaluated to make the best treatment plan for each child.
I worked directly with the children, and in our training, we were taught to use positive reinforcement. One thing I learned is that some children really don't handle failure well, and while you will eventually teach them that failing is ok as long as you learn from it, trying to teach that heavy lesson while at the same time trying to actually change daily behaviors is just too much for some kids.
My suggestion is to get rid of the x's. Use only the stars. There should still be some sort of consequence for behavior that's against the rules, like hitting, fighting, not listening, lying, etc. But use time outs or "close" some of his favorite toys for the rest of the day for discipline instead of a big red humiliating X.
He should start to see the result of exhibiting good behavior and earning more stars. He'll like that you are happy with him too. That's what I think is going to motivate this child. He's shown you the x's make him crazy...why fight with him on that? It's not going to work with him and he's going to keep escalating every time he sees one...or just stop trying to get stars. That's my advice on this.
Lastly, make sure that the behaviors that earn stars are crystal clear to them. Talk to them frequently about what kinds of things they can do to earn stars. Just saying "be nice" to your sister or brother is too broad and vague. Give them concrete examples of things they can do. Like "instead of snatching the toy away from her just because it's yours, bring her something else she might like to play with instead, and then gently take it from her. If she gets mad, ask mommy for help." Then if you see him do that behavior, give him a star right away. Keep providing them examples of how to earn their stars.