This is a recurring story that has puzzled me over the years. I have run across it in Scottish and Irish folklore, and am now coming across it in Missouri and Kentucky folklore. The most recent of my "finds" was in William Lynwood Montell's, Ghosts Across Kentucky.
The basic story is that a mysterious tunnel is found, and the locals want to find out where it goes to. After a while a Piper, or a Fiddler, offers to go, and says that they will play all the way. The people follow the sound for quite a while, but after while don't hear anything more. However, the music is occasionally heard over the years (centuries.
Some variations has the musician's dog follow him in, but come out hairless, and it usually dies. This is usually in the Scottish or Irish versions. I haven't seen it in the American.
And while its pretty equal with pipers and fiddlers in the British Isles I have only found fiddlers referenced in the American.
One other variation I came upon was set in Edinburgh, and it wasn't a musician but a young thief who was offered his freedom if he went in. Of course, he never came back.
I can understand one or two variations, or even how it could be spread through the British Isles, but it continues to "haunt" me why this strange theme would be one of the folkloric "survivors" that came with the settlers, and found roots in America.
I am a Springfield, IL based storyteller with a fascination for how folklore travels, and for history.