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But when the Saxons "discovered" Avebury it wouldn't have been walled in any way surely?

It would, however, very obviously have been a product of the/a previous culture.

What is the a actual source for this early name of Avebury?

But as I mentioned earlier - Wallbury Camp on the Herts Essex boder has no walls as such, but it does have ramparts or banks. Its earliest recorded name is Walla (1086) which simply means "the walls" Could not the banks at Avebury be the walls that so impressed the Saxons? I love the other possibilities, but on balance would opt for the walled ditch.

Medieval Assize Rolls of 1289 describe the henge itself as Waledich, which has been interpreted as meaning 'ditch of the Britians'. <snip>
It is equally likely however , that the name simply means 'Wall-Ditch, as a literal interpretaion of the bank and ditch of the henge; an instance of the place name Walditch in Dorset, for example, is thus explained (Ekwall 1960, 492)

From Avebury a biography of a landscape by Pollard & Reynolds p203-4.

PeteG