While I agree, Pere, that using the word "retard" as an insult is kind of innaccurate, you can't just take it in the literal sense of the word. So many of the words we use in every day language shouldn't even be used in that situation. As has been stated, "Gay" is a common one, especially on the internet, where everything is gay. Another example: "sucks," "This game sucks." The game doesn't literally suck (obviously), it's just the general connotation of the word suck has grown to become "is bad" for lack of a better definition.
It's just whether or not you take it at face value or just use the general connotation. In today's society, more often than not "retarded" just means stupid. Just depends whether you're assuming the person to be speaking in literal terms or in figurative terms.