there was a guy in my old cong that was definitely challenged. he wasn't retarded, he was brain damaged. (he had gotten into a fight at a bar in his 20s and some one smashed his head on the sidewalk)
he was baptised in his late 40s or early 50s. he would sit at the back of the hall just shaking and sobbing. i'm talkign about REAL sobbing during the meeting. he had real self esteem issues and would talk to the elders after every meeting he went to about some new "bad" thing he had done that he needed to confess. he would try to give my dad his diabetes supplies (they both have diabetes) because he "didn't deserve them". it was terribly sad. not only because he was in serious need of some therapy but also because he had been baptised only a few years before. granted, he could've become far more unstable AFTER the baptism, but technically he had major problems decades before.
he was never disfellowshipped or anything (at least not while i was there...i've been gone about 6 years) but i have no idea if that was because he was brain damaged or because he didn't do anything 'wrong'.