I have mixed feelings regarding the use of the word "retard" as slang. I've used it myself on occasion. To me, the word doesn't have anything to do with people who have actual mental disabilities. Its use in slang phrases has changed its connotation.
The word itself, as defined in the dictionary, means slow, or to slow down. That is what we mean when we say something is retarded--we mean that it's stupid (i.e., slow). We don't mean that people with mental disabilities are stupid, and we're not saying "retarded" to insult them.
Downs Syndrome runs in my family. My cousin, C., now 20 years old, has it, and I have never treated her any differently than I treated the rest of my cousins. I've seen how other people react, so I know the difficulties she'll have to face for the rest of her life. She lives life as normally as she can. She's in a theater club (and is apparently a very good actress!), loves to watch TV (especially Coronation Street), works at a daycare center and is very good with small children, and wants to one day be a midwife. She actually goes down the pub now with her friends and with Anorexic Auntie (her mum).
A couple years ago, when a school counselor somehow brought up the fact that she has Downs, C came home in tears and asked Anorexic Auntie, "is there really something wrong with me!??"
If that counselor survived Anorexic Auntie's wrath, I would be very surprised.
Why do we need politically correct words for things that make us uncomfortable? Remember when it was still ok to call someone "handicapped?" But then that changed to "disabled." "Handicapped" used to be ok, though--it replaced "crippled," which was not ok. So how long before "disabled" becomes a bad word, and we come up with another term? We used to also refer to crippled people as "lame" way back when until someone decided that was offensive and so now it's generally only used for animals. We still use "lame" as slang and no one seems to care.