The reason no one can remember where they heard it first is simple. I MADE IT UP. Yes that is right you heard it first, I am taking full credit for the term, but the spreading it came from Christian a guy I work with. We were talking about a server years and years ago that was running redhat. Back before RHEL 3.0 (when I think redhat actually became useful) and I was in my “gintoo is better than all your other OS’s” faze, He and I were speaking about a said server and I mentioned it was running asshat linux.
I simply put ass instead of red when referring to the OS. I had never heard of it before that. I didnt play CS but many of my co workers did and it caught on shortly. This was back in the days when I worked at Internet America.
I can of course not prove this but hey, its the only thing that makes sense. Shrug believe it or dont I wont loose any sleep over it.