LOL! Well, why did they believe it in the first place?
It sounds like a Brothers Grimm children’s fantasy. Miniature animals on miniature continents, heh.
Because it's true.... there are lots of cases of miniature animals on islands. The Channel Islands off the coast of California, for example, were home to a miniature species of 4 foot tall mammoths, called the Pygmy Mammoth until just 12,000 years ago. Scientists thought that insular dwarfism and insular gigantism followed predictable rules. This study seems to indicate that maybe the situation is more complex.