Ok, time for a little science.
I changed [COMPRESSED_SAVES:NO] in init.txt and saved, then searched for my squad names in all of the files in my data/save/region2/ directory. I had a few false positives in world.sav. I have a squad named "The Earthen Autonomy" and earthen matched, but when I looked in the file, it was earthenware. But no "earthen" (and I was ignoring case). I also have a squad named "The Labyrinthine Sacks" and I found labyrinth in world.sav, but not labyrinthine. So I searched all the files under region2/raw, and only found:
./raw/objects/language_words.txt: [ADJ:labyrinthine]
So I suspected that Satarus is right, and the squad names are probably stored as indexes into the language_words.txt file. So I saved the game, changed "labyrinthine" in that file to "scrotum", and restarted. When I checked the military screen, I now have a squad named "The Scrotum Sacks".
So that's it. Just edit data/save/regionX/raw/objects/language_words.txt (where regionX is region1, region2, or whatever)and find the word(s) that you want to change and change them. Note that you will still be limited to same number of words. And this could have side effects if some other object in your game also has a name containing the same word(s). You could end up changing your fortress name, your group name, some dwarf's name, some soldier's title, a FB's name, or many other sorts of names.
Each word in languiage_word.txt is one or more of: ADJ, NOUN, PREFIX or VERB. For instance, the entry for labyrinth looks like:
[WORD:LABYRINTH]
[NOUN:labyrinth:labyrinths]
[THE_NOUN_SING]
[OF_NOUN_PLUR]
[ADJ:labyrinthine]
[ADJ_DIST:5]
So a LABYRINTH as a nonun is "labyrinth" and as an adjective is "labyrinthine".
There are:
2104 WORD
785 ADJ
1684 NOUN
16 PREFIX
673 VERB
So there are lots to choose from and unexpected side effect shouldn't be too frequent. And I rather doubt they'd break anything.
You know, I'm continually impressed by the amount of depth Toady put into this game.