Citing a rejected paper in related work

Should I leave this citation in?

Definitely. A paper on arxiv is still related work regardless of its submission/acceptance status.

Should I say that it has been rejected?

No. That seems inappropriate. The paper may soon be accepted elsewhere in which case your comment about rejection will be outdated.

Just cite it like you would any other paper. If you want, your bibliography could link to the openreview page where people could see the reviews and decision.

Should the knowledge of the rejection change the way I talk about the paper?

Not really. Perhaps the reviews include some useful information. Otherwise treat it like any other paper.

Should I leave this citation in?

Yes. If the work is related to yours and may be relevant to those reading your paper, you should cite it.

Should I say that it has been rejected?

No. The rejection is only a transitory part in the paper's life cycle. If you cite it as an arXiv paper, that in and of itself already communicates the paper has not yet been accepted anywhere.

Should the knowledge of the rejection change the way I talk about the paper?

No, probably not. The rejection doesn't necessarily mean the paper is bad, it just means the conference had no room to accept it. It could still be a very good paper, it just didn't make the cut at the conference. If you know it was rejected for a very serious reason, then that might be relevant (for instance if the reviewing process found a crucial flaw in the paper).