It's not supposed to be a slight at the French. It's a "polite fiction" - the user of the phrase is pretending that the swear word was a (non-offensive) word in another language, and the other party is pretending to believe this (since of course they are so pure that they have never heard the word in question before). Both parties of course know exactly what is going on, but the device allows the first person to apologise without implying that the second person is so uncouth as to know the word in question.

I think I've heard "Pardon my English" before too. I wouldn't be at all offended if I heard that term. In fact, I'll make a point of using it in the future. :)

Never seen it as an issue in Ontario. It's not all that common, but it's not offensive either.