From The Free On-line Dictionary of Computing (8 July 2008) [foldoc]:
luser
<jargon, abuse> /loo'zr/ A user; especially one who is also
a loser. (luser and loser are pronounced identically.)
This word was coined around 1975 at MIT.
Under ITS, when you first walked up to a terminal at MIT and
typed Control-Z to get the computer's attention, it printed
out some status information, including how many people were
already using the computer; it might print "14 users", for
example. Someone thought it would be a great joke to patch
the system to print "14 losers" instead. There ensued a great
controversy, as some of the users didn't particularly want to
be called losers to their faces every time they used the
computer. For a while several hackers struggled covertly,
each changing the message behind the back of the others; any
time you logged into the computer it was even money whether it
would say "users" or "losers". Finally, someone tried the
compromise "lusers", and it stuck.
Later one of the ITS machines supported "luser" as a
request-for-help command. ITS died the death in mid-1990,
except as a museum piece; the usage lives on, however, and the
term "luser" is often seen in program comments.
See: also LART. Compare: tourist, weenie.
[Jargon File]
(1998-07-01)
From Jargon File (4.4.4, 14 Aug 2003) [jargon]:
luser
/loo'zr/, n.
[common] A user; esp. one who is also a loser. (luser and
loser are pronounced identically.) This word was coined around 1975
at MIT. Under ITS, when you first walked up to a terminal at MIT and
typed Control-Z to get the computer's attention, it printed out some
status information, including how many people were already using the
computer; it might print "14 users", for example. Someone thought it
would be a great joke to patch the system to print "14 losers"
instead. There ensued a great controversy, as some of the users didn't
particularly want to be called losers to their faces every time they
used the computer. For a while several hackers struggled covertly,
each changing the message behind the back of the others; any time you
logged into the computer it was even money whether it would say
"users" or "losers". Finally, someone tried the compromise "lusers",
and it stuck. Later one of the ITS machines supported luser as a
request-for-help command. ITS died the death in mid-1990, except as a
museum piece; the usage lives on, however, and the term luser is often
seen in program comments and on Usenet. Compare mundane, muggle,
newbie, chainik.