First of all, I beg your pardon for my english, I'm not an english speaker.
I think that the subject explains the problem: using ASCII code (for html, es. number the bad words list ("Bad words list" in "Admin Panel" - "Site Settings" - "Other Settings" is ignored and the code is automatically translated in the word which it refers to.
I do not think PHPFusions bad word function is coded to take that in to account. I wonder, do you have members that use HIGH ASCII characters when they swear a lot...?