Excerpt from the Alabama Department of Archives & History: http://www.archives.state.al.us
"The etymology of the word or name, Alabama, has evoked much discussion among philological researchers. It was the name of a noted southern Native Indian tribe whose habitat when first known to the Europeans was in what is now central Alabama. One of the major waterways in the state was named for this group and from this river, in turn, the name of the state was derived. The tribal name of Alabama was spelled in various ways by the early Spanish, French, and British chroniclers: Alabama, Albama, Alebamon, Alibama, Alibamou, Alibamon, Alabamu, and Allibamou. The appellation first occurs in three of the accounts of the Hernando de Soto expedition of 1540: written Alibamo by Garcillasso de la Vega, Alibamu by the Knight of Elvas, and Limamu by Rodrigo Ranjel (in the last form, the initial vowel is dropped and the first m is used for b, the interchange of these two consonants being common in Indian languages). The name as recorded by these chroniclers was the name of a subdivision of the Chickasaws, not the historic Alabamas of later times..." (click link for full text)