I tend to be as informal as I can in the classroom. I find that it helps me relax and also puts the students at ease, but it isn't always easy to know where to draw the line. What experiences have others had regarding this issue?

I teach design and my students have a fair amount of studio time to work on projects in class. Sometimes their casual talk contains four-letter expletives. I tend to let it slide, but wonder if I shouldn't. Any thoughts on this?