It seems most fans and scholars agree with Rick that the defining point was Monroe's post-war line-up and his inclusion of Scruggs-style banjo. There was an evolution from the Monroe Brothers duets, through the old-time stringband style of the Blue Grass Boys of the early 40s to the band that included Flatt and Scruggs. Subsequently, other bands imitated the style, most notably Flatt and Scruggs (whose first line-up after their departure from Monroe included no less than 4 former Blue Grass Boys) and the Stanley Brothers. Monroe left Columbia because he felt the Stanley Brothers' sound was too close to his own. However, it seems also that Monroe himself did not agree. The thesis about that particular band and the Scruggs-style banjo was promulgated in Mayne Smith's dissertation on the folklore of bluegrass that was reprinted over 4 issues of Bluegrass Unlimited in the 1960s. Evidently, Monroe told Smith that it was 'damn lies' as far as he was concerned.
According to Rosenburg's history of bluegrass, no one was calling it bluegrass until the 1950s. Monroe's 1950 songbook was titled 'Bill Monroe's Blue Grass Country Songs'. The music was regarded by the industry in the early 1950s as country music - and at the old-time, hillbilly and old-fashioned end of the country spectrum! When they split in 1938, both Bill and Charlie chose a name for their bands that would identify them with their home state of Kentucky - Bill briefly used the name 'Kentuckians' and then settled on Blue Grass Boys and Charlie called his band the Kentucky Pardners. Everett Lilly (of the Lilly Brothers and who played mandolin and sang tenor vocals for Flatt and Scuggs in the early 1950s) maintained that the public [ie, the country music fans) named the music. There was bitterness between Monroe and Flatt and Scruggs after the departure of the latter, but the fans still connected F&S with Monroe. Everett told Carl Fleischhauer:
I remember when I went to Lester and Earl the first time in 1950 - around nineteen and fifty, somewhere there. When we would come out on the stage and open our show up, Lester would m.c. the first half, I would m.c. the second half of it, usually. Lester would say, 'Howdy, friends, we got a clean little country sober show here we hope you'll enjoy'. We'd do our show. They didn't call it bluegrass. But I do recall people saying this to us, they would ask Lester and Earl to do a Bill Monroe tune. Lester and Earl didn't want to hear that name, or I don't believe they did, and I believe the public could feel that. The public began to say, 'Boys would you please do us one of them old Blue Grass tunes like you used to do?' They knew me and Lester could sing them duets like him and Bill. They'd say 'would you please do an old bluegrass tune?' ... the public named bluegrass music ... through the fear to speak Bill's name to 'em. [Quoted in Carl Fleishhauer 'The Public Named Bluegrass Music' Old Time Music #21 and also reprinted in Neil V. Rosenberg 'Bluegrass: A History' Uni Illinois Press 1993 p 102]--Stewie.