The origins were from a story in Texas where the police were conducting stings for public drunkenness in hotel bars. This caused some public outrage. Carolyn Beck of the Texas Alcoholic Beverage Commission commented on complaints that she received, "I don't really understand the hateful outrage. I don't understand, 'Die in a fire'."
The story was circulated, among other places, on FARK.com. The angry "Die in a fire", became repeated frequently, and shortened to DIAF. Whether organically repeated on other sites simultaneously is unknown, but at present, DIAF is ubiquitously used as a pronouncement of unabashed scorn.
Mom: I cleaned your room and threw out that old ratty teddy bear you've had for ten years.