I STRONGLY advise against hot sauce!! My mom used to do that to me when I was little and it wasn't until years later that I learned it presents a real danger. The peppers can cause the throat to swell shut! Never use hot sauce on a kid or toddler! It's one thing if they try a bit on some food and you can closely monitor the reaction, but straight on the tongue can truly be dangerous.
As for soap, we've done that with our 7 & 8 year old sons. They hate the soap. My step-son (7) has bad weeks at his program - for the first swearing offense, he gets 2 minutes. For the second, he gets 4, so on. And if he whines, screams, bawls, argues, etc. dragging out the consequence, I will add 30 seconds for each time I have to nudge him back on the task of putting the soap in his mouth. (this child doesn't learn from his mistakes. Ever.)
I've never heard of a kid being hurt by soap - it's unpleasant and the idea behind "washing their mouth out" - in other words, they used a "dirty" word, now they have to wash it out, seems to make sense to kids.
But... I'd find out if other kids at school are saying it and I'd ask the teachers to refrain from reacting strongly. They should very plainly say, "[Joe], that is an adult word and you are not yet an adult. Please say, "I'm frustrated" or "Darn it!" instead." - this not only keeps it from becoming a fun "push the buttons on the adult" game, it provides them with something TO say when they're upset.