The Case of the Four and Twenty Blackbirds
Neil Gaiman's LJ post about it
Great fun, very enjoyable. He describes it as "juvenilia" - well I thought juvenilia generally referred to stuff that's not very good, but the author is so famous that people will read it just for curiosity's sake. This story is more than juvenilia, as it's a clever twist on all the various nursery stories it references, and conveys very well the rather menacing quality of most so-called stories for children (in that they often involve untimely death and mutilation). It's also a fun pastiche of Raymond Chandler's style.
As to why folktales and nursery tales are full of murder and mayhem, many theories have been put forward to explain it (Bruno Bettelheim, Clarissa Pinkola Estes etc.) But I think it's mainly just because children aren't very nice, and enjoy a bit of gratuitous violence - hence the popularity of Horrible Histories, I suspect.