The game also allows [removed] if I am correct - haven't checked recently, but it at one point was.
Anyway...
While it'd be nice to block all the words that one may find offensive or rude, it is impossible to filter out all the inappropriate behavior and happenings in a game full of unpredictable people of all different ages - which aren't even asked for during sign-up to ensure a "safe" playing experience for different age groups.
Yes, there's a small percentage of children playing this game, and as it was initially a game geared towards children, that percentage will certainly grow, but lets face it, this is the internet, and if you're going to let your child online without supervision, they're going to see some words and inappropriate behaviors. There's no way around this, as any filter can easily be worked around by even the youngest of players. (Perhaps implementing a filter option that parents can control like Toontown had could help solve the issue with younger players, but even then, there's no guarantee.)
The only real solution lies within each individual player. (Exercise some discretion when speaking in a public area - if you absolutely must have a personal, private, or possibly inappropriate conversation, do so in a private room, set to "friends only" or "me only" and invite those who you know you won't be offending in to speak with you - as you never know who is reading your conversation, and as a result, possibly being very offended by it. Think before you act - this is a game that everyone should feel free to enjoy, and being overly sexual/rude can easily put a damper on other members experiences.)
I mean, when it comes down to it, even if every slightly rude word was blocked, and every single inappropriate action resulted in a ban, someone would still have an issue.