The following is from CNN yesterday. It has a nice plausible ring to it, although I'm still waiting for Jazz to give "chad" his inimitable attention.
Etymology: Possibly from the last name of the inventor of the Chadless cardpunch, which cut U-shapes in punch cards, rather than open circles or rectangles. (The U's formed holes when folded back.)

"Chad" would then be a back-formation from "Chadless" misunderstood: If the Chadless keypunches don't produce it, other keypunches must produce "chad."

The word appears to have entered the national lexicon in the late 1940s, around the time people began to refer to "bug" as a computer glitch after a researcher blamed a moth among a group of vacuum tubes for affecting ENIAC, the primitive computer powered by thousands of such tubes, said Payack. That was also about the time when IBM began using punch cards that warned users not to fold, spindle or mutilate.


quoted from http://www.cnn.com/2000/ALLPOLITICS/stories/11/12/chad.derivation