When do you take responsibility for YOUR actions in this? You are coming up with reason after reason why this was all her fault. Sorry bud, it wasn't. Yes...she overreacted to a situation, no arguments there....but YOU have control over your own behavior.
You stated several times in your post that this is tit-for-tat...why do you even play that game? Nothing will be resolved with that, nothing will get better....and no matter what...being called names hurts, even if she's proud of the title b!tch. It's one thing to consider yourself a "babe in total control fo herself"...it's quite another to have your own husband call you a fcking b!tch. Branding her with a name isn't right (just as her doing that to you isn't right)...no matter how many names she throws your way...do not participate. As you said yourself ("I really don’t care what it does to the relationship either.")....well, that's pretty evident Cobra.
No one really cares who curses more with the two of you, it doesn't matter. What you did was wrong....involving your children like that is WRONG. You are underminding your W's parental authority (I don't really care what your perspective is on doing it either) by making comments like you did in front of your children...or by making statements that they shouldn't be afraid to make her mad. No child should be put in the position you two are putting your kids in....Mom says one thing, Dad says another....whose right? What you are doing is in a sense putting your children in a verbal tug-o-war. Knock it off!
Sorry but involving kids in grown-up arguments like this ticks me off...and you are excusing why you are doing it. Your children are children....they are not adults with the understand an adult has. Sure they are intelligent children I have no doubt....but Cobra, if someone else did what you described, you'd point out their error too.