According to the Oxford English Dictionary and Webster's International Dictionary, the word butterfly came about either because the instect was supposed to like butter or because its excrement resembles butter.
( The link with dairy products is not only evident in English: the German name "Schmetterling" is derived from "Schmetten", the word for "cream" in some German dialects. Still, many websites claim that butterflies were originally called flutterbies, which is much cuter. Some even claim that Shakespeare was responsible for changing the name from flutterby to butterfly. The truth, as ever, is a bit less interesting and this case a bit disgusting.)