PMB
I think the mystical bit is mainly an American academic thing; Phillips Barry appears to have been the main culprit in his note to 'The Lakes of Col Finn' in The New Green Mountain Songster (Yale 1939), but I have encountered it elsewhere.
Agree with you entirely about it being a straightforward drowning ballad; in fact one version is referenced to an actual location in Northern Ireland (think this is in Sam Henry's 'Songs of The People').
Jim Carroll