I think it's real but as you say in nepali "ek kaan 2 kaan maidan", that what happened to the story. There might have been a Mahabharat or Ramayan but as the story passed on to the future generation the storyteller might have exaggerated it in order to make it more interesting. You can see a real example of this in the current situation of sai baba. He is said be a god or something but he was caught red handed for doing cheap tricks. For people who believe in him, he is a god and they will exaggerate his story to others by saying that they saw him in the moon, fruits etc. Similar things happened in the past too.