Ransac said:
This is EXACTLY what I'm talking about. Get someone young enough and they don't even understand the retardness of it's origins...
Like most internet talk, "pwned" is derived from a mispelling or abbreviation that goes unchecked because the typer doesn't think it's important to double check what they've wrote. The "p" key is right next to the "o" key, so the word "owned," as in "You got OWNED on that last game, man!!" would commonly be mispelled as "pwned." For some retarded reason or another, this caught on and proves that the masses love to be stupid.
Actually, I believe you're a little off on the origins of "pwned" as well.
Obviously, "owned" is slang, meaning getting beaten or embarassed badly. But the "p" didn't come about simply from hitting the wrong key. If that were the case, I don't think it would have stuck around as well as it has. (Unlike "teh", which is a misspelling of a much more common word.)
Back in the day, when people only communicated over the internet through IRC chat rooms, limitations were set up to prevent cursing, usually through a filter that searched out specific words and censored them. So, if someone wanted to tell another person that they were owned to a very high degree, it was difficult to include the "F" word as an adjective. So the "F" was replaced with "PH". Eventually, the censors caught on to this and removed those words as well. Undeterred, the users simply created an abbreviation for the phrase: p'owned. Gradually, this got shortened simply to pwned, although I've also seen it spelled pwnt.
However, I do agree with the premise that it is an extremely stupid word, used by stupid people (or smart people who want to sound stupid), allthough I feel it has more to do with the herd mentality or seeing something and repeating it regardless of merit, as opposed being done in order to propogate ignorance. But that's just my opinion.