I have a friend who's worked decades in a group house for retarded people, so we've had this conversation many times.

First, the word 'retard' is the technical term. It means 'to slow'. To call someone 'Mentally Retarded' is to say they are cognitively slowed. This terms was actually used rather than calling them insulting names like 'simple' or 'dumb'.

After an endless list of different terms he'd been asked to use by his different managers, and the different family members, he and his coworkers finally settled on the term 'Tang'.

I asked him why, and he said 'It's the part of the knife that isn't sharp. Maybe no one knows much about knives, but no one bothers us about it'.

The funny thing, he explains, is that the only reason that the word 'Retarded' is an insult, is because it describes those people. No one wants to be retarded. Any new term you come up with will, eventually, be viewed as an insult, because it's describing something that no one would ever want to be. 'Challenged' and 'Special' have all gone through these phases of being the less insulting term, only be accepted as a description of people with mental deficiencies, and ultimately used as an insult toward perfectly normal functioning people, because no one likes to be called 'Special', 'Challenged', or 'Retarded'.

So, really, whatever you call them BECOMES an insult. It makes no difference at all what term you're using at the moment, because associating a word with a group of people that no one wants to be associated with is only creating new insults.