I don't know why 120KHz was selected as the modulation frequency (not really the "carrier") but remember; the 120kHz is only the modulation frequency of the bits or bursts that are modulated on the 120V, 60Hz sine wave.
Since X10 PLC was spawned by the design of an old (late 1970's) BSR programable turntable which used an ultrasonic remote control, it could be as simple as the 120KHz was an easy multiple of the original ultrasonic remote's transmitting frequency. The protocols for the ultrasonic remote later became the protocols for the PLC signals on the sine wave.
This is really a Dave Rye question. I suspect he is one of the few who will remember. On the X10 web site there is a history of X10 and you might find an answer there.
