3 Answers

Aboriginal culture

The current spelling of Woolloomooloo is derived from the name of the first homestead in area, Wolloomooloo House, built by the first landowner John Palmer. There is debate as to how Palmer came up with the name with different Aboriginal words being suggested. Anthropologist J.D. McCarthy wrote in 'NSW Aboriginal Places Names', in 1946, that Woolloomooloo could be derived from either Wallamullah, meaning place of plenty or Wallabahmullah, meaning a young black kangaroo.[1]

In 1852, the traveller Col. G.C. Mundy wrote that the name came from Wala-mala, meaning an Aboriginal burial ground. It has also been suggested that the name means field of blood, due to the alleged Aboriginal tribal fights that took place in the area, or that it is from the pronunciation by Aborigines of windmill, from the one that existed on Darlinghurst ridge until the 1850s.

Woolloomooloo Bay in 1855 (watercolour)

There is also an unserious supposition and somewhat of a legend spread among locals that the name was coined when one of Palmer's sheep entered his house (more specifically, his bathroom), and he exclaimed "There's wool on my loo!", which would later mutate into Woollomooloo.

www.about.nsw.gov.au/view/suburb/Woolloomooloo

There seem to be conflicting meanings. Another one I found is from an Aboriginal word "Walla-mulla" meaning "young male kangaroo".

http://answers.google.com/answers/threadview/id/319928.html