It has something to do with these: Convert`TeX`BoxesToTeX[ToBoxes[theta^2]] and Convert`TeX`ExpressionToTeX[theta^2]. That and copying from a notebook deals with boxes and TeXForm deals with expressions. Convert`TeX`ExpressionToTeX calls Convert`TeX`BoxesToTeX with the option
"BoxRules" -> System`Convert`TeXFormDump`$GreekWords
but copying as TeX does not.
Managing TeXForm
TeXForm[expr] applies the list of rules System`Convert`TeXFormDump`$GreekWords when it is typeset.
Demonstration:
Block[{System`Convert`TeXFormDump`$GreekWords = {}},
CellPrint@ExpressionCell[TeXForm[theta^2], "Output"]
]

Note that
Block[{System`Convert`TeXFormDump`$GreekWords = {}},
TeXForm[theta^2]
]
does not work because the output is TeXForm[theta^2], which is then typeset after exiting the Block[]. One can set the value of $GreekWords globally, so that TeXForm[theta^2] would be typeset without converting words to letters.
Managing CopyAs > LaTeX
This is but a partial answer. Setting the following option should work to make CopyAs > LaTeX convert Greek letter names to letters, assuming System`Convert`TeXFormDump`$GreekWords retains its default value:
SetOptions[Convert`TeX`BoxesToTeX,
"BoxRules" -> System`Convert`TeXFormDump`$GreekWords];
On a Mac, it works when I use the context menu (CTRL-click, CopyAs > LaTeX).
However, I find it does not work with the menu-bar command Edit > CopyAs > LaTeX. (I have no clue why as yet, nor how it works on other systems.)
FrontEnd`CopyAsTeXdoes not override the default options toConvert`TeX`BoxesToTeX, fwiw. – Michael E2 Nov 26 '16 at 14:39Block[{...}, ToString[theta^2, TeXForm]]orBlock[{...}, ToString@TeXForm[...]]. Great spelunking, thanks! – Szabolcs Nov 26 '16 at 16:12