I fear the person who first mumbled: "Sarcasm is the lowest form of wit." was probably someone at the recieving end of a bout of very harsh sarcasm and couldn't think of a proper or clever come-back. So, instead of fighting fire with fire in the most verbal of senses, he opted for the intellectual approach.
I'm sure the offending sarcast came back with a very sarcastic reply to it all, but that the offended 'forgot' to add that to the tale.
Something along the lines of:
"Your breath smells so good, I'd marry you to my daughter."
"oh. Well. Ah. Sarcasm is the lowest form of wit, you know."
"No dear sir. The nit-wit is. And that's you."