I have heard and used the expression(merely in jest). It is somewhat of a mock-insult. It is based on the assumption that red-headed step-children are generally looked down upon and, in most uses of the phrase, abused by the step-parent. As a matter of fact, the only way I've heard the phrase is something to the effect of, "I'll beat you like a red-headed step-child!" The origin of this phrase is unknown to me, but I would speculate that it had something to do with the racial bias against the Irish which was prevelant in the west/midwest in times past(I'm thinking 19th Century). But, like I said, this is pure speculation.

Shan-racism suUXxXorS!1!!!1~~-dar