Her's waht I've found so far:

Shermans Dale in Perry County, Pennsylvania is the probable site of the Bright Sherman Valley. Published in the 1909 Bulletin: United States Geological Survey of 1899-1905, there was a Newport and Sherman Valley Railroad, a Sherman Creek, and naturally a Sherman Valley.

The other claim is Sherman Texas which is in the Red River basin. Surely Goebel Reeves, who was from Sherman Texas named his version "Bright Sherman Valley" because he grew up there.

Looking at the first recordings I'd say Lunsford and others from the Appalachian Mountains probably were referring to Sherman Valley, Pennsylvania. We'll never know. One author claimed (with no documentation) the song was brought to Pennsylvania by the early settlers and disseminated from there.

Any more info about Sherman Texas origin?

Richie