In ancient times , Chinese coins had a whole in the middle. The coins would be grouped with a string into one diao (1000 coins). Bandiaozi was an insult similar to the english language insults like “one brick shy of a full-load”
erbaiwu, is half of a bandiaozi, meaning even more ignorant.

BTW, bandiaozi is not neccessarily a bad word anymore, and sometimes used to show modesty.

Truth be know, this is not one of LaoLao’s Laoism’s, I got it from wicki .

http://en.wikipedia.org/wiki/250_%28number%29

First of all, msot people I speak to say that this is 东北话 (dongbeihua) or a North Eastern word. That would makes sense, since (if I understand it correctly) lots of Dalian’s dongbeihua comes from people who moved here from Shandong.

Another example: Dai mei dai fan? = Ni chi le ma? = Have you eaten?

But anyway, on to the other explanation…
I was told that 500 is a full brain, and if you’re an 二百五 (erbaiwu) that means you only have half a brain.

Now, if I could only figure out why I was told such a simplified dumbed-down version…

This page gives four etymologies: http://www.ycwb.com/gb/content/2005-08/06/content_956502.htm. Unfortunately, it’s in Chinese, and Google’s translation (http://tinyurl.com/hqexu) doesn’t really help. I waded through the first two stories — the first one is the same as the one you give. The second one says something like this (I got a little bit of help with this, there were a few idioms I couldn’t get on my own, even with a dictionary):

Once there was an old scholar who was trying to pass a test for a military rank. He studied ceaselessly, forgetting to eat and drink, but he was never able to pass, and he never had any sons. When he got old, he finally gave up, and sired two sons. He looked back on his life, judging whether it was a success or a failure, and couldn’t help but sigh with emotion. Thereupon he gave his two sons these names: one he called “Success” and the other he called “Failure”. He gave classes behind closed doors, and the days went by happily. One day, he told his wife, “I’m going to the market for a walk, you stay here and make sure they write characters. The eldest son should write 300, and the younger son should write 200.” When he got back from the market, he asked his two sons if they studied hard. His wife answered, they wrote, but Success didn’t write enough, and Failure wrote too many. Both are 250!”

I guess this is sort of a play on words, but to me, it’s a little bit disappointing. I hate spending a lot of time translating something, and not getting a cookie at the end.

The third and fourth stories are left as an exercise for the reader.