My 4 year old DD just recently blurted out the F-bomb while buckling her little sister into her car seat. Apparently she had somehow hurt herself on the buckle. I calmly asked, "Umm..what did you just say?" and then my 5 year old said, "She said F***!" I have to admit that I could just barely contain the smile/laughter. Here was my response, "Hmmm...well, while I can see that you were hurt and that word can sometimes be used in that context, that is really a grown up word and I'd prefer not hearing it come from you." and that was it. Has she said it since then? Yep. Even included the S word. I think the key is to remain calm, acknowledge what they said, and just say something like, "Yeah, not really a peaceful or peace keeping kind of word. Maybe you could say _____ instead."
I was listening to the new Train CD the other day and one of the lines is "I've been high and I've been low, I've been yes and I've been oh, hell, no". Well, my 5 year old LOVES Train and was going around singing this song with emphasis on HELL. I thought about it for a second and while it bothered me that my 5 year old was singing that, I realized that I'm the one who exposed her to that word. So, we talked about it and I told her that using that word really isn't nice, but sometimes grown ups use these "bad" words to emphasize feelings. I told her if she sings the song away from home to use "heck" instead.
Probably not the best answer on the book, but I don't really see a problem with it unless they were walking around cussing like sailors.
Even the brilliant and witty AM dj's that I listen to in the morning (Armstrong & Getty) use things like "piss me off" and I have asked my kids before in a calm voice, "Are you doing that on purpose just to piss me off?" Again, probably not a very good choice, but I just don't think that some words are that big of a deal. When it's not the heat of the moment, I usually substitute "piss me off" for "get my goat". Yeah, like THAT makes any real sense? LOL!!
OP, those are just some examples of what I say, but mainly I try not to over-react. Sometimes kids are really testing you to see what kind of reaction they will get. My DP once said, "A calm Mother is a scary mother". You know your son better than anybody, so I am sure that you can see what is truly in his heart. Good luck!