Interesting ideas, and I agree that a means remain in place or be implemented to filter out offensive words, however it is not as easy as it sounds. The mute button sounds like a good idea to me (as in a way to turn off all chat, or chat from selected players). It is not feasible to be able to create an all inclusive list of words or text strings, in my opinion, that will all inclusively eliminate all possible offensive forms of words, let alone ban or silence a person for each infraction, for the following reasons:
1. the variations are endless. I've played other multiplayer games online with chat capabilities and I've seen just how easy it is to circumvent filters. For example the bad word "shit" can be displayed as sh1t, sh!t, s|-|t, sht, s**t, s-t, s.hit, shi.t, sh!+, 5hit, 5h1t, 5h!+, 5|=|!+, $.}{( +, s_h_i_t, s_____t, (s).(h).(i).(t), even SavHaevIjgldT (read cap letters only) or t.!,h.$ (read backwards). The possibilities are endless so it's impossible to cover all forms, and not just for this word but all others too. Not to mention that bad words can be spoken in foreign languages to circumvent filters too (which means that then the programmers would need to look up lists of all bad words in all languages then to prevent offending people of those native languages who might play). The project gets very large and time-consuming very fast. People are very creative in writing and reading and understanding ways to get around the filters. So no matter what list is employed, it will not stop the words from being spoken if someone is determined to do so. I know, I've seen and even used them in other games to get around filters myself.
2. Not everyone may know that a word is bad at first and to ban or silence them for a day or 2 without a warning at least is kind of extreme. People from many countries use this game and what is a bad word to a person in one country may not be a bad word for a person in another country and maybe even a good word due to language differences. I've typed a word in other games only to have it censored out only to find out that it was a bad word in a different language that I did not even realize, so I had to fudge my text to get around it. Now even if we even could filter out all more commonly known words, it would do nothing to appease those who are offended by use of lesser known words in other languages.
3. Furthermore, it's not like all of us never make spelling mistakes, and it's possible that an accidental spelling mistake such as typing "shit" instead of "shift" or "hit" or "ship", or "ass" instead of "bass" or "mass" or "assassin" (if a space was put in), or "fuck" instead of "duck" or "suck", could result in said 2 day silence all for a mistake. Rather extreme for a spelling mistake! Also, if substrings are used, bad words are sometimes found inside acceptable words, such as ass in assassin or mass, rape in grape or drape, ect. How many of us spellcheck our texts before sending to make sure that they dont have mispellings or any bad word contained therein in any language whatsoever?

Point made. Many times I've accidentally sent words that were misspelled badly or had substrings of not so great words in them (grapes anyone? lol). So for reasons 2 and 3 here, silencing a person immediately, without review, for an unknown bad foreign word (to them) said or for a spelling mistake is kinda harsh. It is better to not display the text and have the system inform the typer that the word is not acceptable as a warning. And then, as said, the 2nd measure is just to allow muting or filtering out of that person by the other players.
However, if a person is a repeat offender and continually bothers others with consistent use of purposely vulgar words, then a system should be in place where that person can be reported via screenshots or something, such that a moderator or game master or sorts can review the case and if legitimate, contact the repeat offender to desist or their account will be silenced or banned for a duration determined by reviewer. Thus extreme cases which cannot be dealt with will involve moderator involvement, but hopefully these cases will few.
I am not making the case to support bad language usage as in fact it is offensive for me as well. very much so. and I support measures taken to limit such vulgar expression. However, the means must be practical and fair to all who play (that is, no unnecessary silencing or bans) and allow for flexibility of usage (that is, for words which are not bad, and for users to filter out or mute a person who is using words not in the list).
In all I hope a happy medium can be reached.