Honestly, the story probably is closer to Lee Benson's version. J-Mac seemed like he had an axe to grind, and so he may have just lied.
But it's not rumor, and it's not being taken out of context. It was an audio interview. You can go listen to the entire context yourself.
Here's a link to the audio of the entire interview. The interview was done shortly after that letter that J-Mac's dad sent to a local paper (tribune?) asking to put him into the BYU HOF.
http://thebigpodcast.blogspot.com/2008/11/dan-patricks-interview-with-jim-mcmahon.html