Does this mean the Pocumtuck had a legend of a giant beaver, based on an animal that once lived near them? There certainly had been a gigantic beaver in North America (Castoroides ohioensis), whose fossilized remains have been discovered. Zoologists think it may have survived until as late as BC 8000. But I have my doubts that this legend preserves a genuine memory of this creature.
This strikes me as more of an etiological myth. Myths of this type are used to explain the origin of natural features. My feeling is that the story of the Sugar Loaf beaver was concocted to explain the mountain.
However, in modern times, a giant beaver has been reported from Utah. It was observed in Lake Powell in 2002. Maybe Castoroides ohioensis has left some descendants after all.