The older, wiser Syracuse fan would probably chew your ear off with tales from the 68 SU-Penn State games that have taken place (Penn State leads 40-23-5). It wasn't so long ago that there was nothing more guarenteed than these two teams playing a football game every year. Penn State fans would probably tell you the only thing more certain than the two teams playing would have been Penn State winning, which they did 16 times in a row between 1971 and 1986.
But if you ask a younger Syracuse fan, they'd probably look at you quzzically. "Penn State? We used to play them?" I came to SU in '96 and I remember thinking at one point that it was odd we never played Penn State. It was explained to me later that we used to be bitter rivals but even then it was a notion of the past.
If I had to answer the question, I'd say that the rivalry does matter, just differently to each kind of SU fan. For the older fans, it's the renewal of arguably the best rival SU ever had. For the young fans, its a fantastic geographical match-up which is sure to blossom into a full-fledged rivalry once more, assuming we keep playing them for a while.
Oh, and to answer the original question...
The origins of "Nittany" are a bit obscure, but most likely the word comes from a Native American term meaning, "single mountain." (Since a number of Algonquian-speaking tribes inhabited central Pennsylvania, the term can’t be traced to one single group.) The description applied to the mountain that separates what is today Penns Valley and Nittany Valley, with its western end overlooking the community of State College and Penn Sate's University Park campus. The first colonial settlers in the 1700s adopted this term, or a variation of it, in formally naming Nittany Mountain.Check out a whole bunch of old SU-Penn State memorabilia (compared to "new memorabilia") for sale at eBay while you're in the mood.