This is of course going to beg the ever prevalent question about rationalizing possible conflicts in Canon.
Susan in fact states that she picked out the name Tardis in "Unearthly Child" but as the series has continued, they are all referred to as Tardis. "The Master's Tardis" and "The Rani's Tardis"
So in theory we have three simple potential answers:
- Susan was acting a bit like a teen-ager and stretching the truth
- Susan is in fact the Time Lady responsible for the naming of the Tardis
- Tardis is the actual Gallifreyan word and Susan is responsible for the English Backronym that helps humans understand a LITTLE about the nature of the Tardis.
Or at least 3 would be a great theory if the line didn't indicate the opposite:
"Well, I made up the name Tardis from the initials, Time And Relative Dimension In Space." - Susan, "An Unearthly Child" (transcript)
This would throw down my least favorite gauntlet in the realm of "Unobtanium Magickal Translation Systems" or UMTS for short
Let's assume that the ship is in fact called the 'Gryf Mobe Nopre Peen Dprew' which is High Gallifreyan for "Time and Relative Dimensions in Space." And that Time Lords affectionately refer to the ship as a GMNPD. The Tardis translation circuit (a UMTS put to the test in "Fires of Pompei") would have to look thru time for the first Time Lord/Lady to devise an acronysable (is this even a word) translation; so that when a human heard the word GMNPD; the Tardis would translate that so in fact a human hears "TARDIS." Consider who would be speaking in the language of the Time Lords and who would be speaking English and who the Tardis is translating for. This gets confusing enough.
Granted, the High Gallifrean word might in fact be a telepathic word that 'sounds' like "Tardis" which would simplify everything but would be of very high coincidence. And the Doctor doesn't like coincidence.
This entire massive plot hole created by the UMTS is brought to you by the "Klingon Traditional Battle Sword" which the Universal Translator always calls a Batleth. And by America Ninja Warrior's Mount Midoriyama which translates to Mount Green Mount.