People make up or embellish stories all the time to make things more interesting. It's a natural part of life, and often can't be distinguished from the truth and fact. I don't imagine too many people are being hurt by these creations, as it's just a fun way to pass on knowledge and lore.
When it comes to truth and legend more often than people print the legend. In order to inspire we like to take less than glamorous people and events and aggrandize them to fit our own personal ideals. It's just like painting a fallen cement mixer to look like a space capsule because you won't move it because it's too heavy. It makes for a great story.
Yes, I think that people like to create legends. We all want our life stories to be exciting and have a higher meaning, so we will often embellish stories to make them more interesting or exciting. Just think of how many times you have stretched the truth when telling a story to a friend.
People by nature love stories, and to embellish every day events into tall tales. My grandfather once broke his ankle while fly fishing. However, by the time word got to me, he had been chased by a bear in the middle of the storm of the century. It is entertaining, but perhaps not always our best quality.