If I've inferred correctly from a random lj post or two, it seems that there's a game called Chapeau. I decide to tent my hands over my head (like a chapeau). Of the group that is present, the last one to do so is a rotten egg. The ^ is the graphic representation of the hand tenting, since you can't actually see me (right?).

I think someone learned of the game, and someone else didn't buy that it was an actual game. There were explanations given and proofs offered, the ^ was chosen as the symbol. Goofiness and hijinx ensued, as they often do chez b.org.