The term was created because of the meaning of the word retard. It means slow, and it also means stupid. Then mental disabilities were discovered, and the connection was made due to doctors at the time kind of being assholes. Your understanding of language is backwards.

Since I am the curious sort, I decided to get my Googling hat on. Discovered the term "euphemism treadmill". It's basically the principle that any word used to describe certain scenarios - such as mental disabilities - will eventually become offensive (people are dicks) and will need to be changed. Mental retardation was already outdated by the time of its creation; it's offensively outdated now.

A bad person can be a good character. Were this not the case, there would be very few good characters in any medium. Wakka is an awesome character because he is a bad person.