A simplified version of - Pistol-
owned from counterstrike. newbs run around with machine guns while veterans with real accuracy use pistols and 'Pistol-own' people, or pwn. May even date back to Splatterball (on AOL), where Pistol-owning was also used.
another possible beginning- pwn =
Pawn, from Everquest, where the weakest creatures were pawns. orc pawn.... to get
beat by a pawn sucked, you were pwn'd...