Well, it is a legitimate word. In my business (disability) it is used all the time. It is part of the DSM (Diagnostic and Statistical Manual) and, as another poster noted, it has other meanings too.
I do have a philosophical problem with people or groups trying to restrict speech, even if said speech is offensive to some.
Some people do use the word retarded outside of its original meaning. However, that is the way language works. Over years or decades words meaning will often change from their original definition.
Gay is an excellent example. The meaning of gay has evolved so that it is now understood to mean a homosexual person; it is now part of the dictionary, alongside the older meaning.
Hence, while it may be distressing to you and yours to hear the word retard or retarded used outside of their original definition it is part of life and the evolution of language. Perhaps in future people will find another word to replace it, and the issue will go away.
Further, as I once wrote on this board (on a similar subject), for a person or group to try to force, whether by law or peer pressure, a person from using a word or form of speech is a form of domination. It is literally trying to control the thoughts and speech of another. If I say to you You may not use the following words, on pain of legal or social penalty, then I am trying to control your speech.
We see it in governments around the world. In some societies some words are expressly forbidden to be uttered. If you forbid enough words, you are making it more difficult for people to express their thoughts.
I recall a few years ago the city council of San Francisco considered an ordinance prohibiting the use of the word pets in referring to animals, like dogs and cats, owned by people. The proponents wanted animal companions to be used in place of pets. The ordinance was defeated. Yet the proponents still claim to be offended by the use of that word and will get in your face if you dare use it in front of them.
In my experience, people who claim to be offended by a word will - even if all agree to stop using that word find something else to be offended about. You cannot satisfy people whom are easily offended.
Sometimes in these threads someone will say that people, adults and children, must someday face the real world or learn about how life really works. Such with words. The words in question can certainly be used in an ugly way, but so can thousands of other words.