My colleague Tim Sneath posted a blog back in Nov 2005 which I think captures this pretty well. Here is a clip from the post.

There has been a lot of confusion around names when it comes to In Beta 1, it was known as "Avalon Express", and the applications had a file extension of .xapp. However the Express name overlapped with our use of the word "express" to describe the lightweight versions of our developer tools, so in the PDC / September CTP release they were renamed to the simpler, more descriptive "Web Browser Application", with a .wba file extension. Time passes, and it turns out that the .wba extension is used by another product already, so to avoid application conflict, they were renamed again in the recent November CTP release to "XAML Browser Application" (hence XBAP), with a .xbap file extension. It's the third version of the name, so hopefully we've got it right this time. More...