So lately I've been reading Serhii Plokhy's quite excellent Chernobyl: A History of a Tragedy. There he briefly mentions that the Soviet agency in charge of developing both Soviet nuclear weapons and nuclear power plants was called Ministry of Medium Machine Building.
So my questions are: Why such a name? To me it sounds quite suspicious. Was it a common practice naming secret programs with such names? Was it meant to mislead foreigners, Soviet citizens or both? And the name work or did everyone just guess what the agency really was about anyway?
I have never seen a good explanation of this; it's an interesting question. My assumption has always been that this kind of internal naming confusion was pretty normal in the Soviet Union in the 1950s, especially when connected to nuclear activities. Absolutely none of the sites or agencies connected with the nuclear weapons program had anything like descriptive names, and most were secret even from Soviet citizens (e.g., their now well-known secret cities). Even the name of their chief rocket engineer (Korolev) was kept secret until after his death (prior to that, he was referred to as the Great Designer). Which is to say, the levels of obfuscation was high throughout their society and this may just be part of that.
"Was it meant to mislead foreigners, Soviet citizens or both?" — both, likely. Soviet secrecy was perpetuated upon everyone.
And the name work or did everyone just guess what the agency really was about anyway?
I don't know about the Soviet citizens, but we can get some sense from CIA files. A CIA Information Report, 8 April 1953 makes it clear they know about the industry and know its name is a cover, but they misidentify what it does (they don't seem to realize there is a nuclear connection). However a similar report from a year later indicates that it is in charge of "the Soviet atomic energy program."