It is a given that any term used to describe those whose cognitive ability falls below the norm will, no matter what the original intent of the apellation, eventually be turned into an term of abuse by schoolyard children. In the late nineteenth and early 20th century, children whose learning progress lagged behind that of their peers were said to be, “of ‘retarded mental development’–terms corresponding to the ‘Enfants arriérés’ of French writers…and the ‘Tardivi’ of the Italians.” The word eventually came to be applied to anyone whose I.Q. fell below the mean. Of course, the combination of two liquids and three dental stops rather lent itself to becoming a term of abuse, as the very sounding out of the word suggested the ill-formed stuttering of one who had trouble grasping basic speech.
We now try to cover up the nature of the retarded by saying that they are “special.” Sadly, though, all that this misplaced sensitivity will do is ruin the use of the word special throughout the English language until it comes to be applied solely to the feeble-minded. There is, after all, precedent for such. In old English, the word “sæl” originally meant “time,” “season,” “occasion,” or “prosperity.” Thus, if someone or something was “sælig,” it was timely or fortuitous. Eventually, “sælig” came to signify more than simple good fortune and came to take on the meaning of “blessed.” It is not much of a jump then, to see that, eventually, the term “sælig” was eventually applied to children who were less than bright. In the same way that we hear “Timmy is the ‘special’ child,” and immediately understand without the need to resort to terms that hurt the feelings, so too would English people refer to a child with intellectual impairments as “blessed.” From there, it was not much further until “saelig” came to mean “simple minded” exclusively, and, as you have probably figured out, “sælig” shifted to “sely” in Middle English, which then, in modern English became “silly.” That “silly” has its roots in “blessed” should indicate to us that no matter what term we will apply to the low-IQ, it will always be a term meaning, to be blunt, stupid. There’s a lesson in here about deep structure, but I really haven’t the time to go into it.
On another etymological note, for thousands of years, the accepted etymology of “Cyclops” was that it came from “wheel-eye,” i.e. from the Greek words “kyklos” (from which we get “cycle”) and from the root “op–”. It has lately, though, been suggested that the original etymology may have been closer to “cattle rustler,” coming from a combination of the Indo-European word that eventually came to be “Kuh” in German and “cow” in English. The second half of the word came from the root “klep–” from which Greek “kleptes” meaning “thief” come.  This of course would seem to make more sense, since the “wheel eye” etymologies have a sense of back-constructed etymologies of the pre-modern world which find their best expression in the wild and zany writings of Isidore of Seville. Moreoever, if one looks at the lifestyle of the Cyclopses, one notes that they are pastoralists, “having neither laws nor assemblies,” and who “do not raise plants nor plow.” (Homer’s Odyssey, Book IX, lines 108-112) Such imagery comes from the dark times of the Greek “Age of Heroes,” and indicates the cyclopses seem to be more of a representation of the barbaric pastoralist outsiders than Star Trek monster which it rather later became. Thus it is that your Greek in the ninth-millenium B.C. would more be thinking of a cattle rustling nomad that raids your crops than an exotic monster.
As a brief digression, there was more to the apellation of “blessed” for simple-minded than desire to offend. There were also theological implications, as St. Paul says in the 1st Chapter of Corinthians that the wisdom of the World is foolishness before God and the foolishness of the world is wisdom before God. Such thinking eventually leads to the idea of the holy fool, which IMHO survives in disguised form in most cinematic representations of the retarded, who are portrayed as simple, and yet somehow more saintly and blessed. Such nonsense eventually results in things like the Supreme Court ruling that the retarded cannot be executed.
Noam Chomsky was a brilliant linguist back before the brain eater got him, and we would do well to remember the words of Frodo concerning the fallen Sauraman: “Even now I will not wish him harmed, for he was once of so great an order that none of us would have dared raise a hand against him.” (quoted from memory)
 I do not have a cite on this, though, as it merely came up in a conversation with a friend of mine who is an Indo-Europeanist and I really don’t feel like doing a journal crawl to find the cites, so sorry.