I think the legends are a wonderful part of HârnPlayer. I've used several of them over the years as adventure hooks, local colour, or just plain misinformation.
The Bloody Tapestry had an important function in my last campaign. The events of the Kaldoric civil war, and the growing cynicism and moral decay of Earl Meleken (the PCs' liege) were reflected in the tapestry.
The tale of Galeroth was one of the center motifs of one early campaign, as a Sindarin harper tried to find out the truth about his long-lost uncle.
I used Dergar-Annis from the story of Maradyn as a major side story in one of my campaigns. The adventurers were trapped in his/her/its realm. During their harrowing escape, they had to ally themselves with some Navehan assassins. The players were so spooked by the experience that I managed to use Dergar-Annis as a nemesis when I later ran a nightmare scenario later on.
As my players (and many characters) are familiar with the tales, sometimes the stories can take a life of their own in the campaign. Players seem to be very good at finding some kind of mythical explanation for any unexplained events, however mundane the reality from GM's point of view might be. They start hunting for hidden treasure when they see a hunched-over rider on the Genin trail near Chybisa, or suspect an appearance of prince Brant's ghost, when they hear strange things after staggering out of an Olokand inn...
By far the greatest impact of the legends in this way was when a band of brave adventurers accidentally stumbled on a young dragon's lair in the mountains of Orbaal. They managed to drive the fell creature off, and found a seemingly magical mail shirt and an archaic looking spear. The group included a would-be Jarin harper from Habe, who immediately jumped to conclusions. Of course this was the fabled spear and armour of Barrynn Albarra, he exclaimed. Somehow the other PCs were caught up in the fervour, and soon they presented the weapons as gifts to the lord of Pethwys, and urged him to take up arms against the oppressors. To make matters more serious, the player of the bard managed to roll four back-to-back CS results when he extolled the plight of Jara and composed an impromptu war anthem. The sad result of this bright idea was a half-cocked and incredibly bloody second Jarin rebellion, which ultimately saw the establishment of significant Harbaalese influence in Orbaal. The PCs ended up killing lord Weymyss and other rebel leaders to ensure at least some kind of peace settlement, when the rebellion was being crushed. All this because a young metalsmith's son spent more time listening to old songs than learning a useful craft...
zak