But isn't that basically where the term came from? Actual insects frying on circuits and shorting contacts?

Not really, it was always largely figurative. The famous Mark II logbook with the moth taped to it had the note "First actual case of bug being found." - so that clearly indicates that A) the term had been in use for a while (a very long while, there is a record of Edison using it) and B) Real insects were typically not involved.

Yes http://en.wikipedia.org/wiki/Grace_Hopper#Anecdotes tho' it was jamming a relay.

There was a article on HN a few weeks back, the link escapes me. But there was the first ever bug, an actual moth. It was taped to the error log i believe.

Edit: Brazzy explains it better and indeed seems more informed :)