I like this. This will be great for sales. I personally won't be using it, but I think that all games should have this. See, when I game, I play in my living room which is in the middle of everything and even when people aren't in the room they can hear a lot of what goes on. So when my little sister decides to walk past the room, I don't want her to get an earful of dicktits.
Also, some people are offended by swearing and not by violence. I don't know why, but hey, you can be offended by whatever you want I guess.
Either way, this is a great idea and I wish more games did this.
EDIT: And after watching that video, I can absolutely see why they might want to put a filter on the language.