So, I am not super educated on this history, but I am the product of at least three generations of beef cattle farming. My understanding is that this phrase is true, and I think it makes some intuitive sense: if your community is based around herding cattle, stealing cattle is literally stealing the your livelihood. Furthermore, there's an "outsider" aspect to this kind of crime; it's not like there's farm A, and farm B, and farmer B steals some of A's cattle and now they have more. It's someone sneaking in from out of town, stealing your stuff, and leaving. In general, people are more likely to be lenient to their neighbors than to strangers.
I believe, if memory serves, there's a sort of racial/settler component to this as well. It ties into the whole "cowboys and indians" thing. Goes along with the whole "insider" vs "outsider" dichotomy.
Cowboys were also generally pretty lowly-regarded - about as low-class as one can be short of being an outright outlaw. They also didn't usually have ties to a given town/settlement, so they were easy scapegoats. Combine that with settlers bringing their racial biases with them from home to their settlements, and you've got a perfect storm for a "hang 'em first and ask questions later" scenario.
My initial reading was that they were known to be bystanders at the time of execution, which seemed a bit extreme even in that context. But you're right, it's equally possible to read their being bystanders as posthumous exoneration, which is much more likely.
(FWIW, I've been to Montana, and as a middle-class European, it certainly felt by far the most foreign of the 15 or so states I've visited in the US.)