It was actually a spelling that the Japanese used to seperate Judo from Jujutsu.
In Japan it was called "Kano's Jiu-jitsu". It was also called Kano Jiu-Do, Kodokan Jiu-Do, and Jiu-Jitsu or Jiu-Do. Later simplified to Judo for Romanji and simplification sake. Japanese like any other language evolves and simplifies.
BJJ comes from Judo, and as such it carried what Judo was being called at the time or at it's root Kano or Kodokan Jiu-Jitsu. Hence their variation became Gracie Jiu-Jitsu, later widely adopted as Brazilian Jiu-Jitsu as other schools and families came into play.
But it still all comes from the Japanese way of spelling Judo at the time of Maeda teaching (Jiu-Jitsu and the derivitives above)... which even if you get down to brass tacks, the Japanese spell it: 柔道
Japanese use Katakana, Kanji or Hiragana and not Romanji.
But yeah, BJJ has it right as far as it's roots as to how it is spelled. Jiu-jitsu refers to Judo. Not to Jujutsu.
(EDIT): Oh wow, now Wikipedia has a pretty good write up on it too.. this didn't used to be there but it is there now...
When Maeda left Japan, Judo was still often referred to as "Kano Jiu-Jitsu", or, even more generically, simply as "Jiu-Jitsu."
Higashi, the co-author of "Kano Jiu-Jitsu" wrote in the foreword
"Some confusion has arisen over the employment of the term 'jiudo'. To make the matter clear I will state that jiudo is the term selected by Professor Kano as describing his system more accurately than jiu-jitsu does. Professor Kano is one of the leading educators of Japan, and it is natural that he should cast about for the technical word that would most accurately describe his system. But the Japanese people generally still cling to the more popular nomenclature and call it jiu-jitsu."
Outside Japan, however, this distinction was noted even less. The distinction between a jutsu and a do is subtle, and is still used somewhat arbitrarily to this day. Thus, when Maeda and Satake arrived in Brazil in 1914, every newspaper announced "jiu-jitsu" despite both men being Kodokan Judoka.
The Japanese government itself did not officially mandate until 1925 that the correct name for the martial art taught in the Japanese public schools should be "judo" rather than "jujutsu". In Brazil, the art is still called "Jiu-Jitsu". When the Gracies went to the United States to spread their art, they renamed this japanese fighting system as "Brazilian Jiu-Jitsu" and "Gracie Jiu-Jitsu." "Jiu-jitsu" is an older romanization that was the original spelling of the art in the West, and it is still in common use, whereas the modern Hepburn romanization is "jūjutsu." Other common spellings are jujitsu and ju-jitsu.