I admit that I do say the word retarded. But I never, ever say it at work and have had quite a few conversations with my students about using the word. You never know when someone will be offended by it. A middle schooler quit my program two years ago because someone used that word, even though it wasn't directed towards her or even about a person.
If I do use it, it is usually at home or behind closed doors. I try not to say it when out in public.
On another note, I was at a movie a few weeks ago and heard someone use the "F" word (not F**K, the other demeaning "f" word) out loud in his normal voice. I was SHOCKED that someone would say that word in public, at a crowded movie theater. It made me sad for him.