The strange thing to me about the whole "retard" issue is that it's never the person with the disability being offended. Most of them find the word funny. I never quite understood the concept of being offended for someone else.
Also, all derogatory words are the same to me. Moron is Stupid is Retard is Dumb in sentences like "Wow, that guy is being a _____." They all mean the same thing in the sentence you use it in. Again, gay, fruity, feminine, girly, pansy, etc all mean the same thing when used in a particular sentence like "Don't be _____, John". These are mean words of course but if you become offended by them, it should be personal as they are used as personal attacks. They are not dissing mentally retarded people by associating people that aren't actually retarded with retarded people. It's the other way around! You're dissing John and not the adjective. They are not categorizing you, either. They're just words that have a connotation and they know that you don't want to be taken in that connotation because technically you're not; therefore, you take it as an insult as intended.
Some suburban Muslim people don't want to be called Jewish or associate with urban culture.
Some urban Jewish people don't want to be called Muslim or associate with suburban culture.
Which one is the bad word? Jew or Muslim? Urban or Suburban? The answer is neither. It's all about connotation. You are in Category A and you don't want to be associated with Category B. So, when you are you feel misrepresented and uncomfortable.
Generally, these type of "disses" are in good humor. It's when there is no humor that the diss becomes something more -
When you start using words like "retard" or "Jew" in a collective way, that's when people should start being offended as a people because that's exactly how its being used. It's not a personal diss thing anymore. It's about attacking the group that John is in. Examples would be sentences like " _____s are sinners" or "Or great, more _____s in my neighborhood." These offend and belittle a group. It has nothing to do with connotation and everything to do with hate towards of a kind of person. It's not about John anymore, it's about people that are mentally disabled and how they are bad in some way.