Nope, we don't use it, but only because I don't personally like it, not because I think it's offensive. As many PPs have said, there are many worse words to be using.
We always say "bottom." I have to admit, it does make me cringe to hear little kids say "butt," in the same way that I cringe when I hear kids say "dang" or "ain't"-- I don't think it's *bad*, but I do not
find it aesthetically pleasing. Butt, IMO, = slang, and I really try to avoid slang of any kind--for, again, aesthetic reasons. Similarly, I would teach a boy to say "testacles," not "balls."
As long as I'm "controlling" the words they learn, I'm planning to teach them words I like. This is not at all a hill I would die on with older children.