Earliest mention of Arthur is in the Goddodin, very brief. Arthur legends themselves only had to travel with Cunnedda for them to migrate to Wales. There are certainly plenty of books now which make a good case for Arthur being a hero from the North, placing most of the action up here. And it's true that at the time of Monmouth (look at who his sponsor was) the Scots were hated, and no one would place a great story as happening here for fear of offending the English King.

Personally, I think the story goes back much further, and was retold over and over, with changes as new heroes were placed in the roles of the old heroes. All hero warrior kings become one. It's the nature of the story. The archetypes keep being reborn. I can see echoes of Jack the Canny Lad of many a celtic traveller tale in Captain Jack Harkness. In TV I see the characters from my stories - the unlikely warrior who is the "last best hope" and the time traveller "just trying to get home".

Your point about the king under the hill is a classic example. All over britain there are hills which claim the king (sometimes arthur) is sleeping under it with his warriors, and they will awake when they are most needed. Some have changed to say they will awake on judgement day now. Some have even changed in Scotland to say the sleeping Warrior/King is William Wallace or Robert the Bruce. Stories became localised, as part of the storytellers craft. You stand before an audience telling the story. Eye to eye, voice to ear, imagination to heart. Around a campfire you declare "there, under THAT very hill, is where he is said to lie!!".