That legend

There is no really real or fake legend. However, the legend in free willy was formed from the commonly accepted Haida Legend:

Natcitlaneh (Correct Spelling) was abandoned on an island by his brothers-in-law who were jealous of his prowess as a hunter. He was rescued by the Sea Lions and taken to their village in a cave where he healed their Chief. In gratitude, the Sea Lions gave him supernatural powers which enabled him to carve eight wooden Killer Whales. These Whales came to life when they were placed in the sea and avenged him by killing his brothers-in-law.

As a mark of respect, Natcitlaneh built a house and named it Killer Whale House. According to the legend, the ancestors visited the house located at the bottom of the ocean to obtain rights to use the Killer Whale as a crest.

Obviously this is a more "graphic" story, and unnecessary for the story. The important part was the story of hope. That is what the movie took.

However, native american legends are part of an oral tradition. In this tradition, its not the words but the meaning that matters. In this case, the meaning was the creation of the killer whale. There are other legends on the creation of the Killer Whale from this area:

Tsimshian Orca Clan Story goes like this: Orca (black and white whale) used to be a white wolf; Noo Halidzoks created only one White wolf and thought him the most beautiful of the four-leggeds. White Wolf wandered throughout the world looking for someone like him. He came very unhappy in his form and fell into a deep sleep. He awoke from his vision and went to find Noo Halidzoks. "Grandmother, Grandmother, I have had a great vision; it calls for me to go below the great waters and sing the history of the world. I am also very lonely in my present form." Noo Halidzoks was sad, but realized the power of Wolf's vision. She turned him into a shiny black whale and to remind him that he used to live on land as a wolf, painted the white markings on his sides. Orca sank below the great waters singing his song and all the other swimming creatures rush to greet this new member of their family.

Story 2: Held in great awe for its power and size, it was believed a Killer Whale could capture a canoe and take it underwater to transform the occupants into Whales. Thus a Whale near the shore was a human transformed and trying to communicate with his family.

The Whale is a popular symbol for romance as they mate for life. The Whale, like the Wolf, stays with its family and travel in large pods.

There are so many variations, it would be impossible to define one as THE legend. But, to answer your question, yes, the legend in Free Willy could have been a legend passed down.