I think the problem sometimes isn't the word being used but the context and the reason for using it.
ACTING "psycho" is not the same as actually BEING a diagnosed psychotic.
The behaviors OP described the neighbor doing that were annoying the ventor sounded like general "annoying neighbor" things that could just indicate either a lack of boundaries or general cluelessness. The behavior may have seemed crazy or unusual to the ventor, obviously enough to bother her...but I don't think she should have lumped in the (confirmed or assumed diagnosis?) of bipolar disorder with her complaint about the behavior.
The problem with getting diagnosed with a mental illness (ironically I was actually discussing this with my therapy group last week
) is that people have a tendency to see the diagnosis and not you. You lose your credibility and everything get filtered through your label. If you are sad, people assume it is your depression. You can't just be happy you have to be starting a manic episode...and so on and so forth.
Yes the neighbors behavior may have been annoying, but that is a separate issues from her mental health. It is a double-edged sword to bring it into consideration: either it is used to dismiss her ("She's just crazy that's how she is" etc.) or to villify her ("I can't have a rational conversation with her about this, she'd go off on me because she's such a psycho").
Understanding that someone's behavior may
be caused by, or at least affected by, a mental illness might give you the opportunity to sympathize, and might allow for a more informed way of approaching them. However in the end you need to address the behavior and not the illness that may or may not be behind it.
I think OPs objection to the term "psycho" got everyone on the P.C. defensive and missed the bigger point: that it wasn't appropriate for the ventor to speculate and gossip about the mental health of the person whose actions she objected to. No matter what word she used, if she was spending her time saying how her neighbor was
crazy instead of complaining about how
or annoying she found the neighbor's behavior to be, then she was focusing on the wrong thing. If this was a "vent" session that slammed another person, it was not appropriate.
No matter who someone is or what they do, saying bad things about them instead of addressing their actions is a waste of time and can make the person speaking seem petty and biased. When people vent on this board, we want to discuss the problem - not hear people call their MIL a *deleted* or talk about what a *redacted* their Ex is and how their Aunt is always *insert unnecessary speculative gossip here*.
Words have great power, and should be chosen carefully.