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I suppose it depends on which side of the pond you are on. In the UK, it's my understanding that Lilian is the default spelling while in the US, the name is usually spelled Lillian so I can see where Lilly comes from.

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Personally, I prefer Lily. After all, the flower only has one l. I just find the other way strange looking. In addition, other countries have variants of the name and they only use one l (Liliane, Liliana). Also, Lily after the flower looks less like a nn than Lilly which just looks short for Lillian.