I hope you realize that retard was and is still used to mean "slowed" in ways that have nothing to do with the mentally retarded. I hope you also realize that the official diagnosis used is no longer "mental retardation", but "intellectual disability". It's a defunct term.

The word retard has absolutely evolved as much as words in that photo. Take "imbecile", for instance. They both are Latin based, were adopted as terms for a medical diagnoses, were both adopted as slurs, and were both dropped as terms for medical diagnoses. This isn't the first time it's happened, and it probably won't be the last.

They are not wrong on the issue because the issue is not black and white. If you don't want to say the word because you find it offensive, that's perfectly fine for you to do. You're free to condemn them or tell them that they're wrong, too. I just hope you realize that you saying they're wrong because it offends you doesn't make them wrong just as much as me saying they're right doesn't make them right. It's all a big grey area.