Hello, my daughter who is 22 years old is an OZ fan. The scene you are talking about is not legend, but true. When the Scarecrow and Dorothy found the Tin Man and started to help him by oiling him, one can see a cast member hanging from a tree, who committed suicide by hanging himself.
In all the books and speciality items for OZ, there is no mention of a munchkin committing a suicide.
Watch the movie and play it back a few times and focus on the trees, and you should be able to see it!