I think it's pronounded "powned."
The origins of this come from an online game, maybe CS, maybe not. Apparently typing something like "owned" was a way to show your teams dominance over your rivals. Rumor has it that there was a game with a particularly annoying noob (or n00b) who was pretty bad at the game. After actually winning a round, said noob wrote pwned, clearly by accident, meaning to say owned. The guys on the other team quickly jumped on this typo by saying "pwned" after every head shot. Thus, pwned was born.
Lets see what Wikipedia has to add:
Wikipedia wrote:The slang term pwn (past tense pwned, pwn3d, pwnd or pwnt, various pronunciations) as used by the Internet gaming culture, means to defeat an opponent in a video-game. In this context, to be pwned can be defined as "to be defeated," with the strong connotation of also having been "made a fool of." It is generally used for "friendly taunting" of a player's in-game enemies, and gently "rubbing in" any victories, no matter how fleeting. Most gamers hold the view that to "own" someone is to defeat them well, but to "pwn" them is to hand them a decisive defeat where you clearly dominated, and thus, the word "pwn" is seen as the next step above "own". It is now used intentionally by many members of the culture. The term has become so ubiquitous in Internet circles that it is often used outside of gaming contexts. For example "We pwned them hardcore in that basketball game." Its progressive form is "pwning." An example: "I was pwning like crazy!" Its noun form is, "pwnage" (or "pwnge"). An example: "Did you see that flame war? PWNGE!" "zors" may also be added to create a humorous portmanteau of the word, e.g. pwnzors (also spelled xors or x0rz). Another variation that stems from pwn, is pwnai or pwnai'd, just like pwnage or pwnzors; pwnai is just a variation used to accentuate the base word of pwn, "that kid just got pwnai'd".
Given the recent development of the word, and its primary use in written form only, there is no single accepted pronunciation of pwn. Therefore, pronunciation is mainly based on personal preference. Some of the common variations include (IPA pronunciation) [oʊn], [pəʔˈoʊn], [piˈoʊn], [pən], [pwin], [pun], or, most commonly, [pawn], [poʊn], as rhymed with the original own; ([oʊn]). It can also be pronounced phonetically, as [pwəʔˈn̩] (pwən).
Another pronunciation, [pɔn], is used by many other players, although many online gamers believe it to be a false pronunciation. The main argument against that is that since pwn is probably just a purposeful misspelling of its parent, own, that it should still be pronounced as [oʊn] or [poʊn].
If you're a battery, you're either working or you're dead....