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Mentally challenged person. I wonder if it's considered less offensive among people who use etymologically similar words, like firemen (flame retardant) or biologists (to retard growth.)
Like for me, "faggot" is not in my calling-people-it vocabulary - AT ALL; I know like five gay people, all of whom cool, one of whom my uncle, and of none of whom am I afraid, so please don't think I'm homophobic - but in hearing others' reactions it seems to be more offensive to people who collect less firewood. If the 'n' word were also a day to day common noun, I wonder if I would be more okay using it demonstratively even with such an evil history.
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.