I am so happy to read this thread! I am actually pleasantly surprised by most responses.
I told my daughter that she can say anything she wants to around mommy, but at school her teacher will get angry if she uses a certain words. If she says a swear word, I do laugh sometimes and say "What did you say?" And she says "Only around you, mommy!" I asked her if she talked that way at school and she said "OH NO mommy!"
I thought I had made a new friend recently. We seemed to have a lot in common. I got some chickens from her, and she had asked if we wanted to come to a party. We kept talking and I said something about one of the chicks had crap on its butt.

Anyway, she told me that she does not cuss (we say cuss in Texas haha) around her kids and that she doesn't say butt. She said that if her kids hear her say butt, that they know she is mad. So basically if we come to the party, not to talk like that. Well, she hasn't called me since she heard me say "Butt". :LOL
I kept thinking that her kids probably really let loose with the language when she isn't around. I would rather my daughter talk like that in front of me, knowing I am OK with it, rather than around others. I think by letting her know it is ok, it takes the fun or the mystery out of using swear words.
Works for us so far.