This was brought up in the Preschooler Discussion Forum in December... and here is my response:

What I typically do when I see "picking" is... I ask them if they need a kleenex. This is a good reminder that what they're doing is not polite. Sometimes, they accept the kleenex and try to blow and other times, they just remove their hands from their noses. I'm really consistant with that approach and I think for the most part, it works well.

I try that all the time! When I see him doing it, I will ask if he needs a tissue. Then I go get one and make him blow his nose. Sometimes he'll ask for a tissue but usually his finger is right up there. It's driving me bonkers! but he thinks it's funny (I think from the attention that it gets him). I guess I'll just keep trying to be consistent and he'll eventually stop.

I know I'm very late to this discussion, but I thought I'd throw my two cents in. My son had/has this "issue." We do the "do you need a tissue?" thing, but another tack I tried and which has helped to some degree is this (but it's a matter of timing):

When my son had a cold and his nose was stuffy, I was cuddling him a lot to help him feel better. While snuggled up, I told him I was so sorry he didn't feel well. Then, I brought up the whole notions of germs being one of the main reasons we get sick and "feel like this." And that that was why we washed our hands -- to remove germs. AND THEN (sorry so long) I said "and you know, when you put your finger in your nose, you can put germs there that make you feel sick, just like now. And that's why it's so important that you use a tissue instead of your finger when your nose is bothering you."

I know that's long-winded, but my 2 1/2 yr old really contemplated that because he was in the midst of being sick and didn't like it. And since then, he's been much more amenable to tissues over the finger.

Of course, it means that we should have tissue boxes all around at your child's level so that it's convenient for them.