What's the difference between a (bad connotation) "colonial derivation" and a (neutral connotation) "transliteration?"

Remember, there was no native writing system and therefore no original orthographic form to be faithful to. "Ontario" and "Ontarí:io" are damn similar, so who's to say "Ontario" wasn't just a reasonable 17th Century transliteration from the time before diacritical marks were a thing?