Story I heard is that it started with “sid” being an acronym for “still in development”, but once that caught, it blazed the trail for the rest of the Toy Story characters....
I heard it was because when Bruce Perens was Debian Project Leader, he was working for Pixar around the time of the Toy Story release, and chose the naming scheme. The descriptive name for unstable has always been unstable, not "still in development".