The Jargon File (version 4.4.7, 29 Dec 2003):

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.

    M


The Free On-line Dictionary of Computing (30 December 2018):

luser

    /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)