User blog comment:FairyRaven/Fairy Tail Chapter 349: The Demon Doriate, Review and Commentary/@comment-223.185.48.29-20130830122411/@comment-7418318-20130830135102

Doriarte said it twice already: Retrogression Magic does NOT turn the victims into children.

It reduced the victims magical and physical properties and the childification of the body is just a by-product.

Juding from this describtion and Gray's comment I'd say the mind is completely untouched and the reason why Gray suddenly becomes more imaginative is because he has to, since his usual head-through-the-wall approach doesn't work with his reduced power. "It look like I've been forced to use some of my creativity again" being the key quote.