So you're reading along and you come across something like this:
When Joe Schmo thought the microphone was off, he said, "Proposition 90 is s**t."
My hunch is your brain reads "s**t" and readily understands it as "shit." Am I wrong? I don't think I'm wrong.
So let's figure that we all easily understand "s**t" as "shit." Effectively we have an alternate spelling of "shit."
If you really wanted to make the profanity obscure, you'd use something more along the lines of:
When Joe Schmo thought the microphone was off, he said, "Proposition 90 is [obscenity]."
Unless you're legitimately concerned that your publication will be read by children, it seems silly to protect adults from the offensive character set "shit" when you print "s--t" with the understanding that they'll fully comprehend it as an alternate spelling.
But the funny thing is, I sense that adult readers are happier reading "s**t" and comprehending "shit" than being confronted with the horror of those extra two letters.