First let me clarify that MODs have very limited power--we're a select group of regular players that were invited to take on moderator duties to keep the chat courteous and work on the dictionary. I am one of the few who leaves the MOD tag on, for my own reasons, and with complete respect for those that leave theirs off or use it only occasionally. There is an admin who actually owns and operates the site, but he/she has sort of drifted into legend after months, if not years, of being incommunicado.
In my opinion, names are a grey area--on the one hand, the only rule posted on the weboggle site is "Be courteous," so that tends to be the only rule I make an effort to enforce, but on the other hand, it could be seen as discourteous to choose an intentionally offensive name. There have been far more offensive names (and deliberately so) than the one you use as an example. It's hard to say where to draw that line, though. If someone chooses a name that offended me personally, but not people in general, should I try to do something about it or is that an abuse of MOD privilege? Or if it could possibly maybe offend some person or another but not everyone? Some people choose political names along the lines of "X is great" or "X sucks" and that could certainly offend someone thin-skinned, but isn't worth banning, in my book.
There's really not much the MODs can do about it outside of policing the actual chat, truth be told. For what it's worth, my full opinion is that people who choose deliberately offensive names for the purpose of being offensive on an anonymous, free word game site are sad sacks of crap and merit no attention for their pathetic attention-seeking efforts :)