Interesting thread. Many of us doing the caring have experienced very adverse reactions from our loved ones if we've tried to explain their diagnosis of dementia. My mother's attitude was very much, 'How dare you say that!' because she saw it as a rude insult, as if I'd said, 'Don't be ridiculous - you're completely insane.'
So I'm not very surprised you don't like the word. Speaking personally, I think if I was diagnosed with dementia I would also tell people something else, perhaps 'a neuro degenerative disease' or something like that. Why? Because like you, I think people have a certain mental picture of dementia that I agree is unpleasant and negative. But that's due to lack of awareness, etc. As a medical term I don't have a problem with it...
A neuro degenerative disease sounds more like the sort of thing Stephen Hawkin had, and no one thought he was barmy...