I'm a terrible mother

So, my 2 year old son has called my oldest boy a bitch twice in two days. I think it might be time to tone down my potty mouth just a little. They hear all the things i say when i don't think they are listening and hear none of the things i want them to hear.

Last night the boys were running from one end of the house to the other and this is what i heard.

Fire Ball: "You can't catch me Beefcake."

Beefcake:"I'm going to get you bitch"

I swear to god this is what i heard, i know this is bad and I'm a really terrible mother not only for my two year old saying the word bitch but for laughing hysterically before stopping him to tell him that its a bad word. 

Then this morning, (again not one of my best parenting moments) I heard the boys arguing about something in Fire Balls bedroom. As i grab my coffee to head down the hall, the kids ambush me in the kitchen.

Fire Ball: "Beefcake called me that bad word again"

Me: "What bad word" 
I really had already forgotten about the night before.

Fire Ball: "You know, bitch"

Me: "oh, that bad word. Well, were you acting like one?" 
As the words were coming out of my mouth i totally winced, knowing full well what i just said was not OK. 

Fire Ball: "yes i was, but that's not the point! He's not supposed to say bad words."

Has it really come to this??? My 3 year old is giving me parenting advice. I really am a lucky mama, to have such a funny, smart, loving little boy as my own and to keep me from failing completely as a mom. I am also lucky and blessed to have another beautiful, smart, pain the the ass son who is just like me.