A little history (quotes from OED and Green):
(1) HOT STUFF = (something) first-rate, excellent, good-looking
1884 C. F. Lummis Let. 10 Oct. in Lett. from Southwest (1989) 22 I
will tell you in my next about the cowboys I saw at Junction City,
Abilene and Salina. They are ‘hot stuff’
Possibly related to hot stuff 'strong liquor' (AmEng from 1823)
(2) SHIT = stuff, things (material or otherwise)
1934 H. Miller Tropic of Cancer (1963) 52: We'll throw out all the other
contributors and we'll fill it with our own shit.
1950 N. Cassady Let. 16 Sept. (2005) 154 You have them, & Robert, to
help you get all our shit, books (& most important, radio..) etc.
1965 C. Brown Manchild in the Promised Land (1969) 183: Nobody had ever
stuck me up or shit like that.
(3) HOT SHIT = (something) first rate, excellent, good-looking
1960 V. N. Bourjaily Confess. Spent Youth iv. 108 According to the
terminology of my college generation the man who drank well and
performed colorfully was a ‘hot shit’
[Bourjaily's college years were just before and after WWII]
1963 AS XXXVIII:3 174: ["Kansas University Slang"] To describe something
in the most superlative tones and language is to call it [list of terms
including] hot shit.
1971 R. Meltzer Untitled press release 28 Sept. in Whore Just Like
Rest (2000) 215 Go see Hot Tuna because Hot Tuna is hot shit.
BUT "irony" very early makes its appearance:
1960 Wentworth & Flexner, Dict. Am.Slang hot shit ‘wonderful,
attractive, handsome, ....daring....intelligent...hip...’ Always used
in the negative...
1989 H. Rawson Dict. of Invective (1991) 352: hot shit. Hot shot, hot
stuff; often ironic
1990 J. Leavy Squeeze Play v. 343 I was sent out to do a piece on
some hot-shit star of some hot-shit sitcom who ended up at the Betty
Ford Clinic two months later.
1999 New Yorker 31 May 87/2 My old ten-year plan was to move here
and build a water-ski lake, be the hot-shit guy.
(Additional documentation on request.)