I dunno. I've always heard it as an affectionate term. (I've always thought it was the counter to "silly Billy".)
It's possible it came from the part of Wuthering Heights(?) where it is said "you're silly, Nelly", but I couldn't swear to it.
I won't use it again if you're insulted. *sniff*
(See, if I were addressing a fellow Aussie, who knew me, I might say "silly drongo". My daughter is always telling me I am a "dag", which to her does NOT mean the gross removal from a sheep. She simply means "silly". Other people might say "you're a Wally". It depends on the people, and, often, the circumstances. But, rest assured, the worst thing I ever call someone I am mad at (usually American drivers 
) is "jackass", because to me a jackass is a mule, a donkey, and nothing at all related to the Americanism/s. (I do it within the confines of my own vehicle, where nobody can hear me but the one above, then I bless the idiot driver and take a few calming breaths and I'm good to go.)) 
I think I closed all my parenthetical statements.
