The retired flag is private to the backend,
which obeys it when selecting nodeids.
But do_list works off the nodeids in a Multilink., so
the backend has no opportunity to intervene (that is,
hide the retired items).

Perhaps a Multilink *should* show retired items that
are still linked-to. But that means that (1) you should
be able to "unretire" an item, and that (2) there should
be the ability to "retire that doggy and take him out
of my Multilink".

The other way would be to add a 
Class.is_retired(nodeid) 
method, and make htmltemplate do the test.

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The current behaviour is correct as far as I'm concerned. The retired  
information is no longer available for use, but links to it still work.  
Deleting information outright is dangerous, and would require all 
sorts  
of nasty checks throughout the code. An "is_retired" method is  
essential, and should have been written a long time ago. "Unretiring"  
should also be possible. "retire that doggy and take him out   
of my Multilink" is available right now, as a two-step process.  
  

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The biggest problem with the current approach in our
installation
are multilinks: the web interface shows retired nodes in the
text box
for such a multilink, but when commiting a change the
retired nodes
cause an error.

Traceback (most recent call last):
  File
"/Projects/psp/roundup/stable/lib/python2.1/site-packages/roundup/cgi_client.py",
line 576, in shownode
    props = parsePropsFromForm(self.db, cl, self.form,
self.nodeid)
  File
"/Projects/psp/roundup/stable/lib/python2.1/site-packages/roundup/cgi_client.py",
line 1353, in parsePropsFromForm
    raise ValueError, _('property "%(propname)s": '
ValueError: property "product": "ASCI_251" not an entry of
product

The workaround at the moment is to remove the offending 
"product" from the list before commiting changes, but roundup
itself should be able to handle this. I think it is okay to
display retired nodes, but then the parsePropsFromForm()
must accept them, too.

Any suggestions?

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Yes,  parsePropsFromForm should handle retired node references. 
 

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This has been partially fixed, and is superceded by bug  635260.