Just a thought, but they might be poking fun at the RPGPundit, one of the consultants they removed from the 5e Players Handbook. He checks off just about every box, including always having a pipe in hand.
That certainly would be a good explanation of the pipe. However, given what Mistwell posted about this THAC0 character, I'd have to say no. Firstly, if it were Pundy, #9 would be that THAC0 thinks children are like swine(a common Pundit epithet), not roaches. Next, #8 would be people who touch his pipe would have their kneecaps bashed in with a rusty-nailed spiked baseball bat (or something like that, specifics escape me, but IIRC his being kicked off big purple was because he threatened violence of this sort). #7 is right off, as Pundy definitely does not say little and absolutely minds other peoples' business. #6 would just be a non sequitur unless I missed a tale, as nothing I know about him relates to this. Beyond that, the biggest reason I don't think it is him is that he isn't important enough for them to bother taking potshots. He's a guy who talked his way onto the 5e playtest (pretending more importance in the OSR community than he had), complained bitterly about how they didn't accept any of his proposals (right up until he realized he had to latch himself, lamprey-like, to 5e to have any cachet, and then he changed his tune), and when asked about him, everyone at WotC seem to not remember him (and this sure looks genuine, not like a stealth insult). He's just not relevant to anyone or anything excepting as he can make people think he is, which seems to be his entire business model.
For reference:
It's not significant. He's mostly just an extra and if PCs knew everything about him it would spoil almost nothing. But he's at a location where PCs are likely to encounter him. There are a lot of choices a party can make as to where they go and what they do at the carnival, but THAC0 is located somewhere that the PCs are likely to at least briefly encounter him.
THAC0:
1) Sits right outside the door to [an important location] blowing bubbles with his bubble pipe.
2) Does not get along with Burly, another guard.
3) Thaco is the longest-serving Witchlight hand,
4) Nobody knows THAC0's history and scarcely any dare to ask, for he almost never speaks and harbors a malicious streak that is kept in check by Mister Witch.
5) THAC0 paints his face with a grin and puffs on a bubble pipe.
6) THAC0 retired from performing and no longer stages his knife-throwing act due to an unfortunate incident that took place in the Big Top some time ago.
7) THAC0 prefers not to talk and when he must he says as little as possible. He thinks everyone should mind their own business.
8) If anyone tries to touch THAC0's bubble pipe they will lose a finger.
9) THAC0 cannot stand children and think's they're like roaches.
For me, I am an old player who started with OD&D/Basic and played a lot of AD&D 1e. And...I found this amusing. You gotta be able to laugh at yourself. This is not bullying, it's just a silly ribbing inside joke.
Yeah I had a severely deviated septum for most of my life. That was just a poorly considered way for the kids to mock the bullies.
I've never been persecuted for mouth breathing though.
I haven't had to fear being murdered, beaten, or sexually assaulted.
I haven't needed to worry about how I was going to feed and shelter myself, etc.
People complain about people being offended by things and having thin skin when those jokes and remarks are literally life threatening.
And then turn around and say they are being oppressed because a clown in a story references an old game.
The privilege on display is just remarkable.
I really don't want to armchair psychoanalyze the gaming community, but I see a parallel to something that happens at my work. My job as a manager of upper-middle-class IT professionals, most of whom were 'very bright young (mostly-)lads in high school and college, breezed through a computer science or software engineering or computer engineering or similar degree, and kind of arrived at the good life at age 22. Still, they were picked on for being nerdy as a teen, and the accolades and affirming life-benchmarks* have kinda dried up in adult life, and quite a few of them have decided that they are a kind of targeted group (else why doesn't adulthood automatically feel easy and fulfilling?).
*SATs, ACTs, Advanced Placement or International Baccalaureate tests, or that IQ test they took as a teen and 'honest-truly, all the library ladies helping proctor the test had to come and make sure I wasn't cheating because it was the best they'd seen.'
It seems mind-blowing, but I have to remember that they didn't have an abortive college experience and work with people very different from themselves or have girlfriends who had experienced past sexual violence or go through alcohol dependence and end up being sponsored by someone from a minority community and get even a window into the lives of people with genuine procedural and systemic disadvantages*. As in, they genuinely don't realize how sheltered and insular their self-declared victimhood seems.
I hate the term privilege. I think it does nothing except stop the conversation. Sadly, I think the 'right' term is one that requires explanation (so maybe isn't really right), and that is 'luxury.' Not luxury as in gold-plated watch, but luxury as in 'the luxury of.' The luxury not to really worry about finding another job if this one disappeared. The luxury of knowing that if you are pulled over while driving, nothing bad will happen to you if you haven't been doing anything wrong. The luxury of not having to wonder if that person complementing your looks will try to assault you if you turn your back. The luxury of (and this one threw me*) being able to wear a ratty outfit out into the community without the police being called.
*I went to the park to play basketball with an African-American doctor neighbor-me in a college sports mascot-branded shorts and a plain white t-shirt and hoodie sweatshirt and him in a $300+ athletic suit. I poked fun until he explained that it was to not normalize what I was wearing for his son, who if he went to the park dressed like that might have the police called on him (and then have a non-trivial risk of being subject to police violence or extreme charge for trivial offense which could follow him into adulthood).
So, yes, people casting a joke made at the expense of their preferred table-top RPG playstyle* as an -ism is pretty privileged, but I don't think using that terminology really helps anything. Or at least it would take a much larger conversation about what is and isn't a real life challenge (and which struggles are based on group identity, rather than universals like 'teenagers are awful to each other, especially if they belong to different sub-groups').
*Yes, I know some people are saying it isn't about playstyle but instead age, but I am unconvinced.
Anyways, I've had pretty bad allergies my whole life and also was something of a mouth-breather as a kid. I don't think anyone every made fun of the mouth-breathing. I got called 'Sneezy' (as in the 'Snow White' dwarf) in middle school, and 'Crybaby' because of the watering eyes. Never the mouth-breathing, though. 
