Regarding the question about why John Hurt thought Billy was white, I don't know the answer. All I know for sure is that in a 1963 interview he TOLD Tom Hoskins that Stagolee and Billy were both white.   

And I suggest that based upon black-white relations in 1963, we will never know for sure if Hurt really BELIEVED they were both white. Who knows, maybe his insisting that they were both white served as an indirect--and relatively safe--way of saying that one of the two (Billy) was white.

Anyways, my point in bringing up Hurt's statement is to show that it is not set in stone that black people thought Stagolee and Billy were both black. His claim that Billy and Stagolee were both white suggests that any combination of black and white could have existed in the minds of the black musicians who performed the ballad and in the minds of black listeners. And I believe that the Stagolee/black and Billy/white combination was the most likely combination. And it's important because then the ballad is about a black man fighting with a white man for possession of an object--the Stetson hat-- which was a symbol of manhood during a time when black people were denied their manhood--and freedom--by the white ruling class.

The symbolism is a key to understanding the ballad. Black people had to communicate in code, double meanings, all that kind of stuff due to the realities of the world in which they lived. And when I say "communicate", I'm including music. James Baldwin once told Nikki Giovanni "we had to smuggle information, and we did it through our music, and we did it in the church."