While on the topic of disabilities and Avatar, Toph is the character I point to for "how to do a character with a disability right." Her blindness wasn't played down or ignored, and it was even joked about. It wasn't what gave her superpowers either (like Daredevil), so it avoided the "you're special because you're different" problem with many portrayals of disabilities. All her talent was despite her blindness, with her "sight" justified with the local magic equivalent, and other notable abilities (like remembering people's voices like sighted people remember faces) being something a real blind person could reasonably do. A+ job of avoiding unfortunate implications.
Wasn't it at least implied that she developed her abilities to that extent and in that fashion specifically because she was blind otherwise, though?
Beyond some lines about "listening" being important to earthbending, no, I don't believe they ever said anything like that. She adapted her earthbendering to her needs, rather than her needs making her earthbending better.
I'd love to see more realistic portrayals of of the disabled (physical and mental) like that. "Positive" portrayals that tiptoe around it or pretend it's somehow a good thing are just as bad as "negative" ones that dehumanize.
That's less "disabled" and more "different," though, which is a lot harder to do with some conditions than others. In the case of Toph's blindness, for instance, they basically just made her not-blind in a different fashion, then thought about what sort of different quirks that'd make for. Pulling that off for most other types of impairments is pretty difficult.
You can say they skirted a lot of the difficulties of having a blind character by using the local magic to let her "see" stuff, but notable are the cases where she was cut off from the ground and stumbled around as you'd expect a blind individual to do. Her blindness was never ignored or tiptoed around due to fear of offending someone, is the important part.
So basically the best way to portray disabled people is to make them magically undisabled?
If the story's universe allows it, magic would make it easier to portray the character. Much like any other narrative tool used to make it easier to portray characters. So no, it's not the "best" way, but a reasonable possibility. Now, if we're in a universe without magic and they do that, that's bad, obviously.
The common pitfall I see people fall into when writing disabled people (and other minorities, for that matter) is they feel they need to "make up" for the character trait. So a kid in a wheelchair will probably be the best mathematician in the room, or something like that. It's fine that they're a great mathematician
in addition to being in a wheelchair, but not
because they're in a wheelchair. The former is a regular ol' character, the latter treats the disability like a bad thing that needs to be balanced out so the audience likes them.
TvTropes explains it better than me.This often leads to Disability Superpower, Handicapped Badass, Idiot Savant, Inspirationally Disadvantaged, and other tropes that, done wrong, will imply that disability actually makes a person superior to non-disabled people. Unlike with other minorities, it has not yet become generally recognized that disabled people can be portrayed just about any way non-disabled ones can be. In an effort to compensate for a history of stigmatizing the disabled by using them as Morality Pets, objects of pity, or the subjects of miraculous cures, writers will often completely overshoot the mark, going from "inferiority" to "superiority" — and skipping "equality" altogether.
Bolded part is the big, egregious problem.
EDIT: Oh and since we're in the anime thread, another really good example of how to do disabled characters: Kawata Shoujo. Didn't play too much of it myself (the only character I liked was the misogynist guy, since he was hilarious), but what I did play handled it well. IIRC it's got a lot of praise, and not just from me, for its portrayal of the disabled.