First of all, Dogs that are inbred don't come out "retarded". Only someone inexperienced would say this. Dogs naturally inbreed with there own families to create strong lines and keep there packs going. Human inbreed dogs for the same reason. For breeders, it is a useful way of fixing traits in a breed - the pedigrees of some exhibition dogs show that many of their forebears are closely related. For example, there is a famous cat by the name of Fan Tee Cee (shown in the 1960s and 1970s) appeared in more and more Siamese pedigrees, sometimes several times in a single pedigree, as breeders were anxious to make their lines more typey. Superb specimens are always much sought after for stud services or offspring (unless they have already been neutered!) having won the approval of show judges. This leads people to inbreeding traits within a lines. However, inbreeding holds potential problems. The limited genepool caused by continued inbreeding means that deleterious genes become widespread and the breed loses vigor. Laboratory animal suppliers depend on this to create uniform strains of animal which are immuno-depressed or breed true for a particular disorder e.g. epilepsy. Similarly, a controlled amount of inbreeding can be used to fix desirable traits in farm livestock e.g. milk yield, lean/fat ratios, rate of growth etc. So in all honesty, it can go either way depending on what your intentions are. If you have a superb stud and a great bitch., who are related and the lines within your dogs are weak, check vigorously to make sure there are no underlying medical problems. Two dogs from the same litter are not recommended because if they have the same underlying disease this gene is more likely to develop in offspring. Here is some more information:
http://bowlingsite.mcf.com/Genetics/Inbreeding.html
Can you breed a CKC registered dog with another CKC registered dog that are related? 
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