he used the degrading word because he is degrading the topic. it IS retarded. he could have said "stupid", but that wouldn't cut it. he could have said "really really stupid, like stupider than when Hitler tried to invade Russia stupid", but then nobody would have LISTENED. sometimes, you have to be politically incorrect if you want people to actually give a damn about what you say. the simple fact that the only thing you picked out of this whole interview was the word 'retarded' only proves that Kanye has to be an asshole just to get you to listen.
personally, Kanye's never offended me in ANY way. i'm more offended by the artists who don't say anything and act as if they are perfect. Taylor Swift is going to offend all of her fans when she gets caught doing or saying something "politically incorrect," (and that day WILL come, the only celebs it doesn't come for are rockstars) whereas Kanye can only offend the fans who hold him up to a higher standard than that which he has set for himself.
he has to compare himself to people who care about things, because he can't compare himself to people who don't give a fuck (which is most of us).