Believe it or not, I do remember Bad Barney (but barely!)
He was indeed pictured in one of the early coloring books (the "Who's who" coloring book with Bert coloring a picture of Ernie on the cover). He was not a cowboy - that would be "Bad Bart," who was pictured in the same picture in the coloring book. The label at the bottom said, "Bad Bart and Bad Barney."
Bad Barney was performed by Richard Hunt (His voice was similar to "Headline Howie's" if you've seen that Unpaved episode.) He basically had a purple head (think Amazing Mumford or Dr. Nobel Price) covered with huge sunglasses and wild hair on top. He wore a red (I think) sweater.
I don't recall any blackmail, but I do remember an episode where Bad Barney was making fun of Big Bird (calling him "big chicken" or something like that) and Big Bird was going over to the grown-ups to get some advice. This is one of the few times that the issue of bullying was ever talked about on the show. It's a subject that, sadly, maybe should be talked about more often with kids. That's one of the issues with the show today, that it does not cover many of the more unpleasant issues kids have to deal with.
This was from a very old (late 1970s era) episode. If anyone has a copy of that coloring book (and a scanner), maybe they could post a picture of this guy to confirm that he existed!
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