I think what originally started they paranoia about AV companies writing viruses was the bad press that McAfee got over they news hype they created about the Michelangelo virus years ago. The hype was much worse than the threat ever was, and they got tagged for creating the problem because of their overblown the world's coming to an end doom and gloom press. They basically created and hyped the fear that sold many copies of their virus scanner, when the threat from that virus never was as great as they intentionally made it appear, and the virus was not as widespread as they claimed. Did all the press the virus received help prevent damage? Yes. But it was still way overblown, and it tarnished McAfee's image at the time, and people have a long memory.
Another thing that has helped continue the stories that AV companies write viruses is bad press from sharing virus samples. Its been a long time since I've moderated an AV forum, but there are (were?) organizations that would certify AV scanners against their "zoo" of viruses, and make available samples of viruses that the scanner didn't detect. That isn't as necessary now that many scanners include a built in mechanism to send in suspected infected files. Used to be, the AV companies techs would want you to send possible viruses to them via e-mail encrypted with their public PGP key.
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