According to this CNN article: "in a January 2010 interview for Reader's Digest, founder Rob Kalin finally revealed the secret: "I wanted a nonsense word because I wanted to build the brand from scratch. I was watching Fellini's 8 ½ and writing down what I was hearing. In Italian, you say 'etsi' a lot. It means 'oh, yes.' And in Latin, it means 'and if.'"
I always assumed it was 'etc' as well. Maybe only *nix people assume that because thinking about it, the only time I've ever heard 'etc' pronounced 'etsy' is with reference to the /etc directory.