Have you read the 'how to talk so kids will listen book' at all? I think quite a few people here have found it useful for giving them strategies for handling situations without them becoming instantly confrontational.
I'm not sure what the school wanted you to do about the refusal to participate. I have always been told by the professionals involved with my ds that school is school and home is home and not to punish ds at home for anything that happens at school. The school still inform me of what's going on, but I am not expected to 'deal with it'.
Your ds needs to feel that you are on his side or it just becomes a 'them and us' situation across the board and you end up with resistance to anything and everything. I often tell ds that I will fight his corner every time, as long as he is not being unreasonable or badly behaved and accepts that I can't always fix everything and that sometimes we all just have to get on with things and abide by the rules, sadly no-one has a perfect life where they only have to do things they like (I often use the example of how I hate cleaning the toilet, but it has to be done, so I just get on and do it). We just had a situation recently where school wanted to move him down a group and he was devastated. We went into battle for him, but in the long run decided he was better off not being in the class with the original teacher and had to accept that moving him was the only sensible option. He was furious with us and all I could do was explain that I am only human and can't always make everything better for him, but I will always try my hardest to make sure that what does happen is in his best interests. We are now into the second week of him being in the new group and while he's still not happy, he is now accepting the situation.
We have had times when ds has refused to participate in class activities (mostly in PE and handwriting) and to be honest the best result came via last year's teacher, who with PE, basically just ignored him and let him be bored standing there on his own for an hour. Eventually he decided to start joining in, just with small parts at first, but eventually choosing to become properly involved. With handwriting it took a bit more 'handling' because he loathes and will do anything to avoid it at the best of times and to cap it all he was missing guided reading which he loves. They ended up cutting a deal where he did ten minutes handwriting and then went back to the lesson he liked, even though the rest of the group had a 30 minute handwriting session. The school should be considering what motivators they can use and also, if they are unwilling to just let him not particpate and be bored, what sanctions they are going to put on his behaviour. He should then be fully informed, in advance of what will happen if he doesn't participate and be given appropriate reminders and warnings (not threats).
As for the language etc, if he knows he's being rude and is deliberately throwing insults at people then he needs a consequence every time, without fail. There is no way I would stand for any of my dcs calling me a bitch, they would have instant consequences and if they didn't like it they would be told to stay in their own room until they decided to be civil and polite. If they then decided to trash stuff, at least it would be their own belongings and confined to a place that they have to be, rather than somewhere that affects everyone else. I think this bit has more to do with being a teenager than the AS to be honest and my eldest is only 10, so I suppose I have all this to come.
You said that he specifically chooses language he knows you and your dh will react to. Ds1 also does things deliberately to incite a reaction and we find the best thing to do is not react, keep our cool, warn him in a simple, short sentence "if you say that again x will happen' then, if he persists, implement the consequence without any reaction at all. It works best if we all just carry on as if nothing at all is happening while ds does all his ranting, screaming, wailing etc. It takes a bit of practise, but eventually you will be able to just carry on without batting an eyelid while he carries on and this effectively takes the wind out of his sails.
I think it sounds like you are going to have to get really tough, be 100% consistent and ride the backlash to getting tougher with his behaviour, as it's pretty much inevitable that he's going to react badly initially. It will also be necessary to balance it with finding some common interests and spending time doing something you both enjoy on a regular basis, hopefully things will start to improve as he begins to see and accept that you are on his side.
Make sure you have had a proper sit down discussion with him about how the rules are going to change, exactly what the new rules are and that there will be zero tolerance from now on. Explain the consequences for his behaviour and when the consequences will be employed (eg ask, tell, warn, consequence or ask, warn consequence) and what the escalation of consequences will be if the initial (eg 10 minutes of x box time) doesn't work. Write it down together and make sure he knows where the list is kept - a poster/chart is useful, but not if you think he will just rip it down the first time he gets angry. Always follow through on any promise, as even if you don't actually perceive things as being promises (eg the icecream thing) he will, so if you say he can have icecream, he gets icecream no matter what - if he breaks the rules implement one of the agreed consequences rather than suddenly changing the agenda by eg telling him he's now not going to have icecream. This should make him feel more secure, as currently the rules/parameters keep changing and for children with AS that makes them feel really unsafe. He needs to know what the core parameters/rules are for his life and that those don't change - regardless of what else is going on. He needs to know that if x happens the result will be y - every single time.
I'm sorry I can't come up with an easy answer, but essentially there isn't one. It's just a case of trying to keep calm, not over-react and make sure you are the one in control.
It is horrible feeling like you have to live your life to your child's agenda, but you can gradually change the balance of power back to you by making him feel more secure and therefore have less of a need to control absolutely everything.
Don't get me wrong, things will still have to orbit your ds's needs to a large extent, as compromise isn't something that comes easily to most people with AS and anxiety, uncertainty and insecurity are often at the root of much of the lashing out and perceived bad behaviour. BUT whilst you will always have to work around your ds's needs it won't be in the same way, more with you calling the shots - whilst considering his needs, rather than him dictating the terms.