I think it's rude and inappropriate. I'd just remind him of your rules and deal out consequences accordingly, as someone else mentioned. I probably wouldn't mention it to the dcps again; let them do what they want in their house(they most likely would anyways). But your home=your rules.
I have a 4 1/2 yo dcg who loves potty talk; her favorite during winter break was calling others butthead or poopy butthead. Funny thing is although she has stopped doing it, the impressionable 3 yos are now calling her those words and she comes running to tell me, all upset about it. I asked her where she thought they might have heard those words??
A lot of times if dcks are saying something rude, etc., I will come right out and ask them if they say those things to their teachers at school, to their grandparents, at the people in stores or at the library, and other general public places. And they always look at me like 'of course not!' So I say 'then you don't do it here either'.