I've ruminated on this subject for several years now, always coming close to takataka-ing down something resembling an entry, but never quite getting there. Still, this is a blog called OtaKulture, so I feel obligated to include such an entry.
When I consider this, I realize that the main factor keeping me from writing an entry on otaku is that I keep trying to define the phenomenon in concrete terms, a feat that anyone with more than passing knowledge of nerd culture finds oddly difficult. Just like the term 'nerd', the word's meaning can and does vary wildly from person to person. You could say it's someone who watches anime/reads manga. To that, many would say, "Weeeell, it's not quite so simple."
To many people, otaku is kind of a catch-all term for the obsessed. Most any obsession is applicable, particularly obsessions with visual media and technology. Anime, manga, video games, horror films, computers, etc. The real qualifying factor is obsession, usually to the point that the interest (whatever it may be) influences one's everyday actions and/or way of thinking. It really can be defined as what can happen when your hobbies take you a little too far over the deep end.
With that somewhat nebulous definition out of the way, I'd like to admit my bias here by confessing that I do consider myself to be an otaku. I am an officer of a club on my college campus called, fittingly enough, GMC Otaku. I recently had an interesting conversation with an acquaintance who couldn't wrap his head around the club's name. He tried to kindly inform me that the word has a terrible connotation to it, and if I knew one lick of Japanese blah blah blah on and on. He was understandably gobsmacked when I told him that, yes, I do know what it means, and that I've been learning Japanese for nearly two years. Thus, he swapped tactics. Why, why would you want to associate your club and yourself with something that means something so bad? Why, oh why? Well, the primary reason is that I don't want to be dishonest. Looking around my room at the bookshelf full of manga, the stacks of DVDs either bought legally or awaiting a future in fansub-archiving, and the numerous posters, I find it difficult to think that the term doesn't apply to me. In fact, most of the club's members (pre-freshman membership drive) really could be classified as otaku in most every sense of the word. Of course, some of us have more dork street cred than others, and that can lead to pissing contests the likes of which I'll get into shortly.
As a student of anthropology, I find otaku to be fucking fascinating. As a phenomenon and as a subculture, the idea of obsessive dorks considered to be totally anti-social convening to be obsessive together. It becomes even more fascinating when they start forming cliques, using terms and language not common or present in mainstream language, and defining their own standards of decency. Many things are just different in the context of otakudom.
One facet of this cultural analogy I'm trying so desperately to conjure up is the aforementioned pissing contests. In a subculture brought together by obsession, it's only natural that social standing within the group is in a way relate to just how obsessive or knowledgeable one is in regards to the subject at hand. The issue of whether it's a negative or positive reflection on you largely depends on what sort of toll the obsession has taken on your life. If you came across the knowledge by being creepy and pissing in PET bottles, it is certainly a negative reflection.
I must reflect again on people's strong opposition to the word's use as anything other than an insult. The acquaintance I mentioned earlier in this entry is a fan himself, and quite obsessive, but recoils at the idea of the wok otaku being used to describe anthing but socially withdrawn madness. Yes, the word carries a negative sting in mainstream use, but is it so wrong to use it humorously, frankly, in a way that says, "Yes, I know exactly what you're thinking?" Why yes, I'm fully aware that when I tell you I read manga and can disassemble a PC in a minute or two, you're thinking to yourself that I'm some sort of potentially dangerous, withdrawn loonie.
So, to put it in words that your average college freshman hasbeen groomed to pretend to understand : It's ironic! Quit hatin'!