The etymology I know is szepes < szép + es, where szép means "nice, beautiful" and -es is a common suffix for creating adjectives (of Finno-Ugric origin).
Indeed, since we're discussing a name of the region, I find it quite plausible that it was established by an external administrative power, perhaps extending an existing name of a specific location to the whole region. If this is really the case, density (and ethnicity) of the pre-existing local population is not very much relevant.
However Ondruš argues that the pattern of the sonants in the Hungarian name of Szepes does not violate Slavic phonotactics, so there would be no reason to modify it to sound well (after all, it's not Székesfehérvár, which is fairly impossible to remember and pronounce by non-Hungarians.

). On the other hand, loaning an existing Slavic name of Spiš to the Hungarian language would require breaking the consonant cluster and a vowel harmonisation, which are attested with other toponyms in Slovakia as well. So, according to his reasoning, it's more likely that it had been a Slavic name loaned into Hungarian rather than the other way round. If this is the case, resemblance to a common (and quite fitting, indeed) Hungarian word would only have helped accepting the name.
Ondruš derives the name of Spiš from the word which would have meant "a cut forest". However, considering that the area was inhabited since the Celtic times, conquered by Great Moravians (9th century from the West or the North), Poles (in early 11th century from the North, probably along the rivers) and then by the Hungarians (late 11th century and onwards, gradually from the South), and each of them established their own administration, I tend to think that the name itself may be in fact older, and was only adapted to the subsequent languages.
It was a side topic anyway.
EDIT: I added the actual names here and there to make it easier for other followers