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It seems like it might be reasonable to take this story with a grain of salt - it could be a tall tale, no matter how entertaining it seems. I'd be interested to know if anyone has any better sources on this!
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Replying to @sigfpe @brendanzab and @sl2c
I remember hearing a talk by Dana Scott where he said that indeed this is a tall tale, and that Church chose the λ just because...he needed a letter. (Maybe somebody knows where to find this talk online?)
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According to Dana Scott at least the goofy 'hat calculus' story I posted before is a myth: twitter.com/danghica/statu - tl;dw: somebody actually wrote to Alonzo Church asking why he used ‘λ’ and he replied back “Eeny, meeny, miny, moe…”
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Replying to @noamzoam @sigfpe and 2 others
I was in the audience and filmed Dana Scott telling the story of what the lambda stands for. youtu.be/juXwu0Nqc3I
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