One story relates that when Bill Monroe got his first (or first major) radio play, his band didn't have a name. The D.J. made them the "Bluegrass Boys" probably because some or all of them were from Kentucky. The name just stuck to them, and eventually to the music.

That story is in one of the "History of Bluegrass" kind of books, but I don't hae it handy and don't remember which one to look for at the moment.

Almost anything with a remote connection to Kentucky eventually get's a "bluegrass" stuck to it, since the state itself is known that way.

There have been some other threads on the subject, with more detailed and more varied explanations.

John