Did you know that "Three Sheets in the Wind" is an old sailing slogan? Well, it is.
In the olden days (back when sailing ships were the main form of transportation) a sheet was actually a rope in sailor-speak. Specifically, it was a rope attached to the bottom corner of a sail. These were pretty important because they helped trim the sail to the wind. If they became loose all manner of bad things would happen as the sail would then flutter about like loose lips and the ship would go all wonky. Ironic then that there's the term "loose lips sinks ships," eh?
Aside from sheets, what else is needed to steer a ship? Sailors. And what do sailors like more then cheap hookers? Cheap alcohol. Imagine if you will sailors on shore leave guzzling up cheap hookers and alcohol, then stumbling back to their ship. See the connection? A ship without it's sheets anchored goes wonky. Sailors staggering back to their ship looks wonkily similar... so the creator of the term compared the two, borrowed the concept of a three-masted sailing ship with three sheets loose, and viola... ya got yourself "three sheets in the wind."
Speaking of Three Sheets...
* History lesson about the three sheets slogan obtained from Pleepleus on the Three Sheets forums.