Perhaps not quite what you’re looking for, but the word “nice”, which today is about as innocent a word as you can find, originally meant “stupid”.
The word “cretin” comes from a French dialectal term for “Christian”. The idea was that people with developmental disabilities might not amount to much, but at least they were Christians. So the term became a euphemism. “Those people? Oh they are Christians. <changes subject>”
My understanding is that the term was simply intended as insulting - by the sect’s (many) Muslim enemies.
Western chronicles of the time interpreted the term literally, and invented the intriguing fantasy that the sect’s killers were doped up with hashish as part of their indoctrination.
“Nice” is interesting. Didn’t it also go through a phase where it meant something like “disingenuous” or “tricky”. ISTR hearing a discussion on the radio about the phrase “a nice distinction” (in debate) being used like we might say “a distinction without a difference” or something like that.
This is interesting too, although kind of the reverse of what I had in mind – here the positive term has become offensive over time. I had never bothered to look it up, but I had always assumed that “cretin” had some relationship to Crete.
That’s my understanding as well.
What’s more, even if they had - for whatever reason - decided to self-identify as “the hashish-eaters,” they wouldn’t have used the Arabic Ḥashshāshīn, but the Persian equivalent (whatever that is). They were pretty big on preferring Persian to Arabic, see.
That’s double-plus ungood. 
(Also, for some reason it reminded me of SNL’s “Bad Cabaret for Children”.)
It’s kind of the same (AND simultaneously kind of opposite) to saying that someone is “special”.
Bonfire from “bone fire” to burn the bones of a convicted felon after hanging, since his body cou;dn’t be buried in a consecrated cemetary.
I must admit, though, it is one of those stories one almost wants to be true.
Murderous hippies! 
Take that, Summer of Love. 
Dude, the story totally rocks.
Charlie Manson in a turban, man! Who can resist that?
“Nice” did (and still does, although it’s a less common usage) mean fine, subtle, or precise. This is what is usually meant by “a nice distinction”. I believe the “nice” in the expression “nice and neat” was originally intended to indicate precision and order rather than pleasantness, although in this context the meaning is close enough that it doesn’t make that much difference.
There’s a scene in Jane Austen’s Northanger Abbey (written in 1799, published posthumously in 1817) where the rather naive heroine Catherine uses “nice” to mean pleasant and is corrected by her friend and love interest Henry Tilney:
Henry would probably fit in pretty well around here. 
Just for the record, here’s Cecil’s article: Does “rule of thumb” refer to an old law permitting wife beating?
The words pencil and penis have a common root (so to speak).
Drifting a bit off-topic from etymologies: but the quoted Catherine / Henry conversation in Lamia’s above post of Feb. 9th, gives me pause for thought. I have tried, and tried, to get into Jane Austen’s novels; but after only a short while in each instance, have found self having to drop them with a verdict of “for me, unreadable”. It’s chiefly the damned Regency-period English, and usage conventions thereof, which drives me round the bend – and I realise that that is a foolish reason for being put off. The quoted material just mentioned, suggests to me that there must be good stuff in Jane A., if I could just get past the language bugbear.
Some editions are better than others when it comes to modernized spelling and punctuation, although I can’t make any specific recommendations off the top of my head. I would say that, while it’s not considered a literary classic on the same level as her later works, Northanger Abbey isn’t a bad place to start for someone who’s not sure if they’ll like Jane Austen. While all of her novels contain some humor, Northanger Abbey is probably the most obviously humorous. Catherine is a big fan of Gothic romances, and keeps expecting the real world to be like her favorite novels. A lot of this involves referencing/satirizing books like The Mysteries of Udolpho that are mostly forgotten today, but the genre’s tropes (spooky castles, damsels in distress, brooding heroes, etc.) remain familiar enough that it’s easy to get most of the jokes.
I’ll see your pencil and raise you a vanilla. My gosh, how dirty it sounds when we etymologize. Both of them coincidentally use the same Latin diminutive suffix in their derivation.
Joystick, originally slang for penis.
Perhaps not as offensive as some of these, but it sure was embarrassing explaining the origin of grandfather clause to a Russian colleague at work.
Huh. Another artifact of history I could have gone my whole life not knowing. This is a great example of what I was looking for.
Scumbag. - means condom, particularly a used one. I’d hear the term for decades before hearing how it derived.
Of course, “sucks” has come to be quite mainstream (even used on that family-friendly Full House TV show, by the children), and I always understood it to be a reference to oral sex.