NSD DOES stand for News San Diego!
In Augest 1988, KCST's News director (I think it was Irv Kass?) decided that in order to get his chronically 3rd place newscasts more attention, the station needed to better promote it. At the time, Channel 39 was one of those burried UHF TV stations, with a 1st place network but 3rd place ratings. So, he convinced station management to change the call letters to K NSD, and News Center 39 became News San Diego, 7/39. (7 denoting their cable audience). The idea was to get viewers to take notice that the station took news very seriously. Also, KNSD had done research and found that the majority of San Diego viewers watched TV through cable, and thus, were more likely to know the station as Channel 7, not 39.
If you do a google search you should be able to find the story somewhere from the San Diego Union. Also, a new sign with a tall thin classy wite font logo on navy blue debuted and was erected on their old facility of 163 in Kearny Mesa, immediately following the end of the Summer Olympic coverage on NBC in 1988.
And, it worked, KNSD eventually moved to number 1 in ratings although it took some time getting there. Of course, they were eventually sold to NBC, moved Downtown, and now, the 'NSD" meaning has been changed to mean NBC San Diego. But this was not the original intended reason for the call letter arrangement.