For the likewise ignorant, it's pronounced "poned": rhymes with "owned."
It's not coincidental either. The word is used to describe the victim of a practical joke, or the loser in a battle (usually a computer/video game virtual battle), as in "You got pwned!" or "I totally pwned you!"
When I was a high school teacher a decade ago, the word was "used."
So, what gives with the spelling and weird pronunciation? The most common explanation is that the programmer of a popular computer game mistyped the word "owned," which appeared on screen when the player lost. He hit the "p" key instead of the "o" key, and nobody caught it. At least not for a long while.
So instead of getting "owned," losers got "pwned."