Dumb isn't used to denote what its original meaning is (a person unable to speak - we would use the word "mute" today). Dumb just means stupid, as if one is culpable for their own stupidity.
Retard in its noun form literally means a mentally handicapped person. So by using it to offend a non-mentally handicapped person (albeit, a stupid one), you are concurrently levelling an offence against the mentally handicapped in general and since the mentally handicapped are not deemed culpable for their situation, this is deemed socially unacceptable.
It literally means delayed in time, we use it in physics a lot, in the context of people and development it applies to those whose education (or cognitive ability) is delayed in time.
I think the word is typically pronounced slightly differently (more correctly?) when used that way. This clip from The Hangover uses the slight differences in pronounciation for comedic effect: http://www.youtube.com/watch?v=PoendYt_ZJ0 (skip to 0:45, video contains mildly offensive humor).
Obviously the obsolete medical usage, now offensive usage, is just the regular word meaning delayed, but I think that somehow that specialized usage strayed from the generic usage over time.
Well, no, a mentally "retarded" person is not expected to develop further. They're behind, but nobody thinks they'll catch up. "Stunted" would be a more accurate term than "retarded"; the latter is just a euphemism.
Retard in its noun form literally means a mentally handicapped person. So by using it to offend a non-mentally handicapped person (albeit, a stupid one), you are concurrently levelling an offence against the mentally handicapped in general and since the mentally handicapped are not deemed culpable for their situation, this is deemed socially unacceptable.