Potty Mouth

We're experiencing an explosion in potty mouth in our house. It started last year, when Kyle was in third grade. He came home, giggling and whispering the four-letter word that he'd learned on the playground.
But really, he's not the major potty mouth in the family (I love that term, don't you?). He even cringed the other day when he heard the M-F word, saying "I never knew there was such a dirty word in the world. I shouldn't be hearing that."
It's my first-graders, Seth and Jesse, who have really embraced the profane.
"You're a dick" is one of their favorite expressions, followed only by "You're a dumb dick."
Nice, huh?
A couple of months ago, one of Jesse's friends, the angelic boy who lives down the block (you know who you are, little man!), taught Jesse the F word. They subsequently spent an all-too-long trip back from a birthday party repeating it ad nauseam.
Except, to be truthful, he already knew it.
In fact, Jesse dropped the F-bomb last year. Yup, as a kindergardener, he unloaded that lovely bit of language on Kyle's sweet and mannerly former teacher, Miss M. Not a clue where he got it from.
Some strategies we've used in a vain attempt to clean up the language:
1. Ignore. Doesn't work, because they have each other to giggle with or get annoyed at. "Mom! He called me a dick!" "But HE called me a dumb dick!"
2. Explain to them that only ignorant people without imaginations use this kind of language. "But Mom, Daddy said the damn word this morning!"
3. Punish. A time-out for every four-letter word. The result: Twelve time-outs in one day for Jesse (the main offender), which interfered with homework, bath and bed-time.
For now, we're trying a combo of all three strategies: ignore the first time, explain the second and move on to time-outs for the third. And it damn well better work.