I have been watching the recent on-demand episodes, and I think the best one is from season 6's Sisters, with Blair and Jo bantering:

Blair: What an evening.
Jo: Just be glad it's over.
Blair: Never again. I couldn't believe that was my mother laughing and carrying on that way.
Jo: Yeah it's pretty obvious, wasn't it?
Blair: What?
Jo: It's obvious she was making a play for my dad.
Blair: She most certainly was not.
Jo: C'mon, she was laughing at everything he said. Even when it wasn't funny.
Blair: She was simply being polite and listening to your father's ridiculous army stories. I particularily like the one about the time they made soup from the goat they ran over with a jeep. Such a perfect dinner conversation.
Jo: Are you saying my father's...
Blair: Crude? Yes, he is.
Jo: Well your mother is a spoiled air-head who has nothing better to with her time than to spend it in a beauty parlor. She should be lucky to get my dad.
Blair: And your father would just love to get his hands on all her money, now wouldn't he?
Jo: Oh, well I thought that's how your mother got all her boyfriends, Blair. Oh, it's alright though, at her age, how else is she going to bait the hook?
Blair: Are you saying my mother is trying to buy your father?
Jo: Are you saying my father's for sale?
Blair: Yes, yes I am.
Jo: Well I'm saying your mother is trying to buy my father, who's not for sale.
Blair: Fine, I'm going to bed.
Jo: Me too.
Blair: Where are you going?
Jo: To bed!
Blair: In the bedroom?
Jo: That's where my bed is!
Blair: Then I'm going to study.
Jo: I thought you were going to bed?!
Blair: I changed my mind, if it's okay with you.
Jo: Suit yourself, sis.

Jo won that one, most definately. Now you call the shots, what's the best catfight on the show?

I really like the one in the newsroom in "3,2,1". :)

My favorite cat fight is the one in Dear Apple. This episode Blair enters the Helen of Troy contest and Jo forgets to tell her they canceled the contest and Blair goes and gets tossed around by Langley mascot Louie the lion. And so Blair decides she wants revenge and the next day a few of the guys from student council stop by to pick up Jo and Blair tells them that Jo is almost ready and that Jo wants them to wait up in there room but Blair tells them there room is where the bathroom is. So the guys go up and see Jo coming out of the shower.

There was an episode with THREE catfights "New York, New York":

The first was in the coffeeshop with Jo and Jessie and Blair and Dina.

the 2nd was when Dina dissed Blair for cooking.

the 3rd was Jo and Jessie in the rec center over the mural on the wall.