Simply put, the word Heathen originally meant “one who dwells on the heath”. The word Pagan is from the Latin "paganus", which meant “one who dwells in the countryside”.
As Christianity encroached into Europe, the cities were the first places that were 'converted' to the new faith. The isolated villages and "heath-folk" lagged far behind their "hip" city relatives. Heathen and Pagan were originally terms synonymous with "hick" or “country-bumpkin” today.
I've also heard some Norse/Asatru Pagans refer to themselves as "Heathens", to distinguish themselves from other types of Pagan traditions.
~Flame RavenHawk