Retarded, or mentally retarded is just a condition. I don't need a euphemism for it. If I see a person who's mentally retarded out in public, I just think "hey, he's retarded" and go about my business. I don't address them verbally with "Scuse me, retarded guy!" Mentally retarded is actually ideal for me, because it refers to a very specific mental distinction that is congenital. Nothing to be ashamed of or afraid of. The rest of us, who aren't mentally-retarded (the actual medical condition), know we're not retarded, and the retarded people don't give a sh*t that they're retarded, and care even less what word we use to refer to them amongst ourselves.
What a simplistic view. Calling somebody retarded is meant to be an insult. Do you think that could be hurtful to a person that is "retarded" or to that person's family? How should the kid with a learning disability that struggles to keep up with his classmates feel when he is called retarded? Should he be like, I'm not technically mentally retarded so know big deal?