Randall Roberts, writing for the Riverfront Times, the local entertainment paper in St Louis, adds more specifics to the origin story.

Stagger Lee shot Billy Lyons, Eleventh Street and Convention Plaza

"On Christmas night 110 years ago at Bill Curtis' Saloon, a pimp named 'Stack' Lee Shelton shot Billy Lyons. The fight began when Lee and Lyons, both drunk,started arguing over politics. Shelton grabbed Lyons' derby and smashed it. Billy snatched Sheltons' hat and demanded restitution. Shelton pulled out his .44. 'Give me my hat, Nigger!' he screamed, befotre gunning down Billy Lyons. He picked up his hat and walked out.
Within ten years, the crime evolved into one of the most recorded songs in history. 'Stack' has morphed into 'Stagger' and the song became 'Stagger Lee'. Over the course of the next century, the murder became an archetypal legend.
The saloon and its building have long since vanished, but the spot, a block west of the Edward Jones Dome, still endures its share of turmoil; the St Louis School Board owns the building. In fact, the side walk where Stagger pulled the trigger is stained with a splotch of red paint...or is it blood?
Lee lived just down the street, at 911 Tucker. Noted photographer Drew Wojchik now owns the building, and he has transformed the former brothel into an art gallery."