The name of Hangman's Stone is traditionally said to have been derived from the circumstance of a sheep-stealer's having seated himself upon the stone, with his booty, a live sheep, tied by the hind legs round his head. The sheep, finding a fulcrum, began to struggle, and the string which tied its legs slipped down to the man's neck and strangled him before he had power to extricate himself.
Ah yes, sheep were clever in those days, they could find a fulcrum, no problem.
Pulman also mentions the following folklore. The stone is right between Borcombe Farm and Gatcombe Farm - so if you're going to see the hounds anywhere.. though I admit it has 0 to do with the stone itself.
The secluded combes and lonely hills about Borcombe and Gatcombe are the scenes of numerous supernatural stories, and it is not many years since it was religiously believed by the peasantry that that 'country' was regularly hunted at night by a pack of 'Hell Hounds' whose breath was fire. Perhaps the smugglers [..] assisted, for the purposes of their own, in keeping alive the superstitious fears of the country people.