Example of "The Telephone game" :
A buddy of mine was working a sidewalk demolition project that was going on in his city's old-town district. Each day, the construction workers would tear out a half block of the downtown commercial district. And then replace it with new walks all in the same day. And then a few days later, would progress to the next section of the block, and so forth. Hence my friend could NOT wait till the end of the day (5pm when the workers cut out). Because otherwise it would already be laid with new concrete. He literally had to go during their lunch hour, to get onto the dirt (yesteryear wooden sidewalk zones).
And he was getting seateds, barbers, V's, tokens, etc.... However, as you can imagine, it took delicate discretion to not get booted (stepping over the ribbon and past the orange cones, right in the middle of broad daylight busy street). So he learned to "grease the wheels" of the construction workers. Getting on their good side by passing out common V nickels and IH's

After the workers curiosity was satisfied, they would then turn a blind eye to him being there

And each day, when they'd return from lunch, they would go to see what his latest finds of each day was. And he would pass out another coin or two to keep up his good graces .
One day along with a few common coins and whatzits, my friend found a small owl-shaped amulet. About the size of a chess piece. It was gold in color, and had red jewel looking things for the owl's eyes. When it came time to show the workers his daily finds, he pulled that out of his apron and mused "
Might be gold". (The workers were amazed!). And then, pointing to the 2 red jewels in the eyes he mused "
might be rubies" (again, the workers were besides themselves with fascination). And then my friend mused "
probably 1800's" (since that was the age of some of the coins coming from this block-section).
That night my friend went home and sorted, cleaned and studied his finds. When he got to the owl charm thing, he got it under better light and magnification. Turns out it was only gold plated. Not gold. And the red jewel eyes ? Just glass chips, not rubies. Turns out it was just 1920s costume jewelry junk, so he promptly threw it in the trash can.
The next day, he was back out where they had progressed to another section of block. As he was hunting, he could see a worker in the distance eyeing him intently. The worker got off his tractor and approached closer, studying my friend. My friend could see that it was a new worker, that he had not previously seen on any days. Eventually the worker got brave enough to approach my friend, asking "what have you found?" As it turns out: My friend had not found anything good this day so far. After telling the worker "nothing good so far", the worker launched into a story about how the previous day, a guy had found "gold coin(s)" !
My friend was floored! He assumed that he must have left too early. And that apparently someone must've came after him, and found gold coins(s)! He pressed the worker for details. The worker was utterly convinced that a gold coin was found the prior day, and it was "from the 1800's", etc..... My friend was wondering who came behind him, cursing his bad luck for apparently missing something good, leaving too early, or whatever.
As he and the worker conversed about the "gold coin(s)", a curious word slipped out of the worker's mouth: "owl". IMMEDIATELY my friend knew that the worker was talking about HIM ! So he corrected the worker saying "No, That was me". And "no, the owl wasn't gold, it was only gold plated". And "...No, none of the coins were gold". BUT THE WORKER WOULD NOT BE DISSUADED. He assumed that some other metal detector guy must've arrived later and found a gold coin. Because you see: He had it on good authority: He heard it this morning around the water cooler, as the other workers talked of all the finds a guy with a detector was making the previous day.
Now obviously you see that the man mis-understood his buddies. He was mixing up terms and words. But think about it: If that man's memoirs were written down, and 100 yrs. from now someone looking at old newspaper clippings, or reading a diary entry, reads about this, it's going to seem PRETTY BULLET PROOF TRUE. Right ?
Hard to argue with eye-witnesses right ? Sounds like someone , 100 yrs. from now , should tear out the sidewalks to "get the rest of the gold", right ? After all, those workers were duly appointed by the city to be there, authorized, etc... Right ? Thus indisputable, eh ?
And it won't matter how much facts you find in this game. Eg.: the names of the workers, their social security #'s, the dates of the sidewalk tearouts, the reliability of their nature and sincerities, etc..... You can sort fact from fiction, and trace back the telephone game all you want. But the fact remains: If there is no treasure, then there is no treasure.
This is what humors me when discussing the camp-fire lore caliber genre treasure legends. The believer will admit (if you press them) that it's possible that there is fiction (embellishment over time) that could have crept into the story. They will admit (if you press them) that telephone game gets involved. But they will be quick to point out (as you have done here), that it's "merely a matter of sorting fact from fiction". Sure. But this fails to take into account that perhaps there was never a treasure to begin with. What I mean is, the catchy "fact from fiction" line simply assumes that a treasure is, of necessity, there to find. Says who ? Perhaps the entire thing just has more plausible explanations from the git-go, and no treasure necessarily exists.
See ?