Working as designed, all fucked up. This is a phrase that (according to my dad) originated in WWII. Used primarily in relation to machinery, now applies to a lot of technical solutions.
1. A fantastic sensation akin to "wonderful" but moreso associated with any number of angelic women named Wanda. Usually experienced during or after a sexual, or romantic encounter with any Wanda of your choice.
2. Word used to describe the euphoric blissone feels when in the company of Wanda.
hyper-internetted version of "What the fuck," or "what the fuck is."
"watafux" is kind of an extreme and deliberate way of using the phrase. It's rather rare (google came back with like eight results, at this time, which is early December, 2007), and it's more likely to be used in parody or self-awareness of some kind than in anything along the lines of earnest misspelling. to put it another way, watafux is parody of the spelling of obnoxious anonymous internet posters, found in forums, on youtube, on urbandictionary, etc... I doubt it's ever been used with anything but the most ironic intent.