There are a bunch of different strategies for naming projects. Abbreviations and recursive acronyms have been covered, but keep in mind that a lot of the biggest (F)OSS projects have names that aren't acronyms or abbreviations: Firefox, Apache, Eclipse, Ubuntu.
It really depends on your target audience and what you're developing. If you're developing primarily for other tech people--say you're developing a compiler or library--a descriptive acronym or abbreviation might be the best way to go because it can tell people what your project does. If you're developing for a wider audience, keep in mind that abbreviations and (especially) recursive acronyms aren't necessarily going to be intelligible or meaningful to members of the general public.
In either case, there are a couple of things you should shoot for. If people can't remember the name of your project that's a bad thing: make it memorable. You don't want people getting your project confused with others (and you want it to be searchable from a major search engine): make it unique. You are probably going to want a good domain name too. In my experience finding a good domain name can be one of the hardest parts of choosing a name.