According to Margaret Geogre who wrote the very-well researched “Autobiography of Henry VIII” the slang term “bloody” has its origins in Henry VIII’s break with the Catholic church. Prior to the the break, the oath “By our lady” (meaning the virgin Mary) was a common utterance. After the break, using that epithet was likely to mark you as a Papist, a definite no-no for those who wished to remain to loyal to their notoriously hot-headed monarch. Hence “By our lady” was slurred into the still used “bloody.”
That’s a very interesting and plausible hypothesis; would you care to provide a link to more detailed information?
Also, it’s customary to link to the Staff Report you’re commenting on.
http://www.straightdope.com/mailbag/mbloody.html
It would be nice if the link was automatically in place when one clicked over with the “comment on this report” button.
Dave Wilton says that her theory is one of many, but lacks proof. The OED also says good theory, no proof.