I dunno. I think the GM has ever right to disallow silly names, especially if they're run contrary to the established theme/tone of the game. Frex, I gamed with a guy who came up with outrageously stupid character names like "Mister Nuckinfutz" during Shadowrun games.
This did not amuse me (as the GM) or any of the other players, as we had all agreed beforehand that these games were to be serious in tone. We all explained to the player in question what the issue was, and he refused to hear it, explainig that acting like a moron was how he had fun. *Sigh*
In retrospect, at that point, I should have told him to pack his stuff and leave. He was breaking the agreements that he had made prior to play, refused to compromise (even a bit), and then cried to high heaven when NPCs reacted accordingly to his outrageously stupid names.
As for backgrounds, I think that sword cuts both ways, too. I've seen players abuse the hell out of a background to give their character all kinds of neat-o stuff that the rules otherwise forbid. So, in instances like that, I think the GM should be able to full-on veto a background if necessary.
As for your particular situation, as we've really only heard your side of it, I don't think I can fairly weigh in on the matter.