First time I heard that, I was shocked. SHOCKED! Even as a teenager. I responded, "Are you serious? That's retarded! What are you, dyslexic?"
But think of it this way: It's now completely acceptable (and not considered offensive) to use the adjective "lame" to describe something that's....uh, lame. But that's not really much better than saying, "Wow, that pep rally was totally handicapped" or "My friends all like the Offspring but I think their songs are developmentally disabled."