Mistaking a Chilean for a Mexican is no more offensive than mistaking a German for a Swiss (or a Spaniard for a Portuguese). If you think it is, then I strongly suspect you are actively looking for opportunities to be offended, for your own reasons.
Try calling your average middle American a Russian (same difference, right?) and you might be in the ballpark.
Those were once clinical terms, but by the late 19th century they had become pejorative. So retardation was introduced, and worked for a while. Then it became a schoolyard insult, and was replaced by mentally disabled or mentally challenged.
If schoolchildren invent an insult out of "disabled", then I imagine a new term will be introduced. This doesn't mean it wasn't a good idea to replace "retarded", but it seems likely that there's no permanent solution.
What I doubt (lacking real evidence) is that the person-noun form "retard" -- think about phrases like "discharging a retard", "managing retard behavior", "a unit full of retards" -- was ever in widespread clinical use, as "idiot" or "imbecile" were in the past. The move to stop using those terms was not about just changing the word, but also recognizing mental disorders as something distinct from a person's inherent nature.
(Again, similar to the move from "negroes" to "black people". Either can be used pejoratively, but the former is arguably intrinsically offensive.)
I can't find a good source on this, but I suspect you're wrong about "retard" being used clinically. The terms "mentally retarded", and "mental retardation", were and still are used in clinical settings to describe delayed development (though they're going out of fashion quickly). The use of "retard" (as a noun) is pejorative because of linguistics relating to the distinction between attribute and essence; the same reason "a group of black men" is fine, but "a group of blacks" is not.