It's always fun to talk about names with Katawa Shoujo. Why, even the name of the game itself is the source of quite a lot of controversy. What about the rest of the names? In accordance with the spirit of chronicling the history of our project, I'll shed some light to the origins of some of the names in KS. Most of these names were given before 4LS existed, when the project was still taking its first steps because character names are one of the most important things in a visual novel, and because people were tired of calling everyone {insert disability}-tan. In fact, the names were one of the first issues that was decided upon.
The character names of the main cast were decided by the best method known to man: a poll. As a result of clueless weeaboos with no fact check throwing in their suggestions, we were stuck with some stuff that has since caused quite a bit of headache. As an aside, crud also fucked up a great amount of the names given afterwards (and nobody else thought of fact checking after him either). Names like Iwanako and Yamaku are from his beautiful imagination. Anyway, names that don't really exist were not a big deal as long as they could be written with kanji, but impossible names or terrible names were a much bigger problem. In some cases, we have retconned stuff, in some we've succumbed to the fact that the characters were known by the names they were originally given.
Hisao Nakai
There was a grand battle over our protagonist's name. Many people wanted to leave him anonymous as a homage to, well, the Anonymous who were the driving force of the project while others wanted to give him a fixed name and personality. The end result is a schizophrenic combination of the two extremes, a fixed character with a fairly substandard personality. We later found out that a famous psychologist has the same name as Hisao.
Rin Tezuka
In the name poll, Rin was contending against suggestions such as Moe and Samori, but prevailed in the end. Her last name is a homage to the grand master Ozamu Tezuka, and it contains the kanji sign for "hand" as well, as a reference to both her disability and artistic ability. Because Rin is such an uncommon person, her name is written in a somewhat uncommon way as well. The sign for her name means "jewel" instead of the usual "cold" and when said aloud, it does sound a little like the tinkle of jewelry.
Lilly Satou
Lilly was given a foreigner background (all blondes are foreigners; black, blue, green and red are the only natural hair colours in Japan) so her first name is foreign. Lily, or yuri is the symbol of lesbian romance in manga/anime subculture and a lot of people wanted to make her nomen an omen. Lilly's last name is very commonplace, much like Smith or something in English.
Shizune Hakamichi
Shizune's first name is written with the symbols for "silent" and "sound". Nuff said. However, she was originally name Rosa, as in the flower rose and a silly pun for the japanese word for deafness, rousha. We decided that one girl with a flower's name and a foreign name is enough, so Shizune became Shizune. Her last name is annoying, because it's not a "real" last name, but it also is naturally written in a somewhat morbid way so we had to come up with an unnatural writing that wouldn't sound as stupid.
Iwanako
This is a very unusual name, it's written with the signs for "char", a fish relative to salmon and "child". Interpret that as you will.
Nurse
The school nurse was originally referred to as Nurse-kun, a reference to a series of threads on 4chan that were about the experiences of a real, nameless nurse who was in charge of a then 7-year old multiamputee car crash victim. The story that those threads wove was considered very human and touching (apart from that special 4chan flavour any thread there has; the initial post starting the story ponders whether he should rape his patient or not). To this day, Nurse's and Emi's relationship still reflects the relationship of the channer nurse and his patient in some ways.
The origin of the name for Yamaku High School is alluded to in this forum thread. Tea house Shanghai (which is actually more like a cafe) almost became another Higurashi reference, but a timely intervention made it a Touhou reference instead. So much better, yes? The city our game is set in will remain nameless, but it's loosely based on a real, existing city in northern Japan. Crud even has taken a photo from the approximate place where the main building would exist.
The rest of the names have mundane and/or uncontroversial origins, or I just couldn't come up with anything funny to say. Ask if something interests you and I might explain it.
-Aura