it was supposed to be a temporary name, that i believe was intentionally chosen to be bad to make it easier to replace later. they were under pressure because the original name eelo had a trademark issue.

when they eventually found a new name "murena" it appears they then decided to use it as a brand for the phones that they themselves sell instead, keeping /e/OS as the name for the operating system

What is their connection with eels?

I just checked and Murena is an eel, too. Imho, one of the ugliest fish one could choose as a mascotte :S