Shane was a tough guy an campus...he was sort of a bully in the beginning and really didn't have any sort of storyline until he got Spike pregnant.  His parents wanted to send him to private school after they found out about him and his loose penis, you could say.  Well he didn't go, and didn't help the baby at all, so Spike didn't like him anymore.  I believe her words were:
"You say you want to help, until it becomes inconvenient!" -she breaks Eggbert

Then he got acid from Luke and they went to a concert and took it.  After the concert he jumped off of a bridge and hurt himself pretty bad.  He wasn't seen for many years until he came back as a retard and kept saying:
"Dumb jerk, you should be kicked in the head!"
Spike tried to be friends with him but he just kept saying that so it didn't work.