As someone who has helped build and support several different business web sites I find the choice of wording for the original Error 500 page to be unprofessional at best, and downright offensive at worst, which it obviously was to the people listed above (and remember that 95% of the people who have a problem with the way you do business simply walk away and never complain, as these people took the time to do).
The way it was handled in support was marginal, at best. Yes, I suppose you could say we were going with the dictionary definition of 'retarded', but let's be honest - when was the last time you heard someone say 'being retarded' in a strictly objective, semantic manner? And the change to the page isn't much better - whoever changed it is basically saying 'I'm not really sorry, I'm just changing this to make you happy.' Saying 'I'm sorry if we offended you' is not really saying you're sorry at all, just a vague attempt to assuage bad feelings. And don't even get me started on the massively inappropriate response that belizima entered in not one, but all three of those support requests. If these users have a problem in the future with LJ, unfortunately they're going to think twice before asking for help again.
Obviously, hot buttons were pushed on both sides of the fence.
Yes, people like belizima are free to post whatever they want in their journals, and no one will delete it - that's fine. However, people choose to look in other people's journals and, like walking in to their homes, take the chance on being offended by something that's hanging on the wall, or their choice in books or videotapes sitting on the shelves. However, that's a choice - getting the Error 500 message is not.
In the future, if we're going to present a more professional face, I would suggest that someone review these types of messages from time to time for appropriateness. A little humor is fine, but I believe we should aim to make it something more universal, and really ask if it's going to offend someone or some group.