I wonder if it's considered less offensive among people who use etymologically similar words, like firemen (flame retardant) or biologists (to retard growth.)

It's less offensive among those who actually work with retarded people :-/

"Mentally challenged" type of insults seem to have their own cycles of use. Words like "idiot", "imbecile", or "cretin" used to be a clinical diagnosis, then stopped being medical terms, and nowadays are considered to if not mild then non-horrible.