Origin of the usage
A Google Books search for "Look who it ain't" turns up 21 unique matches, the earliest of which are from the 1960s. From Bernard Kops, The Dream of Peter Mann (1960) [combined snippets]:
JASON: [Taking out a cosh, holds it in striking position, then offers it to the young man] It's dangerous to be out alone these days — can I interest you in a cosh, or a knuckleduster? Haven't I seen you before some where? On Tele maybe or in the rogues' gallery.
PETER: Jason, it's me.
JASON [shines a torch in his face] : Strike a light, look who it ain't. So the salmon has come back to be tinned, definitely grade three.
PETER: I've been through a hard time.
And from Paul Strathern, Pass by the Sea: A Novel (1968) [combined snippets]:
'Look who it ain't,' said Den.
I hesitated. There was something in the air, emerging.
'Haven't you got anything to say for yourself?' he continued. I must have frowned. The faces of the others clustered behind Den's shoulders.
'What do you mean?' I asked as firmly as I could, sensing that weakness would be no answer to the problem. Whatever the problem was.
A similar Google Books search for "look who it isn't" turns up 18 matches, the earliest of which is from a 1973 English translation of Amos Oz, Elsewhere, Perhaps (1985):
Reuven stood up. It was a meaningless gesture, politeness from another world. He greeted Ezra with exaggerated cordiality, as if (how absurd), as if he was the headwaiter of the place.
"Well, well, look who it isn't. Our Ezra. What a small world. This is quite a . . ." He hesitated for a moment. "This is quite a meeting. Truly."
Nigel Rees, A Word in Your Shell-like (2004) offers little insight into the phrase beyond a very rough approximation of its date of origin:
look who it isn't! Facetious greeting of the do you see who I see? variety, uttered on spotting a friend or acquaintance. Mid-20th century.
Eric Partridge & Paul Beale, A Dictionary of Slang and Unconventional English, eighth edition (1984) adds a bit more detail to an entry that Rees really ought to have credited in his very similar treatment of the phrase:
look who it isn't! Facetious greeting on surprise meeting, or when someone joins a group: mostly teenagers', church circles', mid-C.20. Cf. do you see what I see!
And further useful detail shows up in Tom Dalzell & Terry Victor, The New Partridge Dictionary of Slang and Unconventional English (2006):
look who it isn't used as a facetious greeting on a surprise meeting UK • Milligan, Taylor and Watson crowd round him [...] MILLIGAN: Look who it isn't. —Graeme Kent, The Queen's Corporal {Six Granada Plays}, p. 92, 1959
For context, here is a somewhat fuller version of the instance from The Queen's Corporal, which seems to have been a screenplay for Granada Television [combined snippets]:
Bell faces up to Vale. The tension is suddenly broken when Bob Straw comes in carrying a kitbag. He is a fat genial man—considerably older than the others and respected by everyone for his shrewdness and length of service.
STRAW. Get to your feet, you great hairy-armed men. The last of the warriors is here.
Milligan, Taylor and Watson crowd round him while Bell and Vale slowly relax in the background.
MILLIGAN. Look who it isn't.
STRAW. Come on, let's have a drink.
TAYLOR. Bob, you old devil.
WATSON. What the devil have you been up to? You've lost weight old man.
TAYLOR. Come on, let's 'ave 'em. Intimate confessions, you old sinner.
MILLIGAN. Details, details.
It thus appears that the expression arose no later than 1959, that it is from the UK, that the milieu where it originated may have been the military (the 1959 example), London street talk (the 1960 example), teenagers (Partridge & Beale), or "church circles" (Partridge & Beale).
Why the negation?
As each of the dictionary authors observes, the negation of the expected "Look who it is" serves to render the expression facetious: whereas "look who it is" can (depending on intonation) suggest pleasant surprise on the speaker's part, "look who it isn't" (taken at face value) indicates disappointment that whoever it is isn't someone else. From this reversal of implication arises the term's facetiousness when the encounter is in fact one that the speaker welcomes.
Do people still say it today?
As for the question of whether "look who it isn't/ain't" has any currency today, I note that among the matches in Google Books search results are ones from 2013, 2013, 2013, 2014, 2014, 2014, 2014, 2014, 2015, 2015, 2015, and 2016. That's a dozen matches from the past three years—so whether people on the (UK) streets still use the phrase or not, novelists writing about them certainly do.
Best Answer
It comes from the Watergate scandal.