As indicated by others, underneath it all, you are encountering saturation, and ergo probably blooming, on the sensor. There are a few ways to deal with this. All of these options will bring the intensity in that part of the image down to a more reasonable level.
Key point: since these are retroreflectors, they will reflect light back to the source most effectively. While your illumination is the dominant source in the environment, there are others.
So, potential approaches:
1. Decrease illumination time or intensity, or the camera exposure time, as suggested.
2. Decrease the image intensity by picking an illumination wavelength where the sensor has lower quantum efficiency, like purple, red, or infrared.
3. Provide a filter for the input to the camera that matches your illumination color (a piece of green plastic in front of the lens, if you are using green illumination).
4. Use a polarization filter like these:
http://www.thorlabs.com/newgrouppage...tgroup_id=7081 (Full Disclosure: I am a Thorlabs employee) If you experiment with the retroreflective tape, you should find a combination of input and output polarization angles that cut out a lot of the specular reflection coming off the tape and other surfaces. Set up a polarizer over the source in one direction and rotate another polarizer in front of your camera to find an optimal signal. Retroreflectors change the polarization of the light. So, if you illuminate with one polarization, the signal coming back at you will be a different polarization. Specular reflections don't effect polarization.