The conventional theory goes like this: "Kathmandu, the capital of Nepal is situated at about 1400M altitude in a bowl shaped valley surrounded by four major hills. Seven rivers flow through the city. The city was originally known as Kantipur (the abode of Lakshmi).Some claim that the name came from Kashta Mandap (Sanskrit for wooden structure), a three storeyed temple built in pagoda style in sixteenth century, dedicated to Gorakhnath. The structure is made entirely of wood, using no iron nails."
My theory: Kathmandu is derived from the Tamil phrase 'Kaatu Mandapam' or the Mandap made of forest trees. The Tamil connection is highly possible because Dharma Dutta of Kanchipuram is said to have built the Pasupathinath Temple in Kathmandu. Kaatu Mandap seems a closer cousin to Kathmandu than Kashta Mandap, don't you think?