Perhaps its an urban myth.. there is no water up there, so that when the monks lived up there they had to make a pit for storing it. The flat plateau of the Tor was inhabited from the dark ages, two theories for the 5th/6th century, either a local tribal leader using it as a hillfort or monk hermits. There were two skeletons found buried north/south in this period, and there are legends of two laybrothers - Arnulph and Ogmar... so this early foundation could have either been pagan or christian, there was also a small cairn up there again of the same or perhaps earlier roman period. If you go for the pagan occupation than the legend goes that the local leader was Melwas abductor of Guinevere. But if you go for hermit monks, they could have settled there on an earlier native/roman shrine which are quite commonplace in Somerset in hillforts. From the 7th century it became a small anglo-saxon monastery, maybe a retreat or hermitage.
What is interesting about the Tor are the modern legends that build up around it but it seems to me that its christian nature is somewhat stronger than its pagan, at least in archaeological terms. It was Stonegloves who made me go and read it up by the way moaning about St.Michael's church tower up there ;) but as for mad people(who is to say who is mad at Glastonbury) being locked up there, think it comes under the same heading as giants throwing prehistoric stones down to the valley below.

refs; Glastonbury - Myth and Archaeology - Philip Rahtz & Lorna Watts