The short story as for as the Oregon one goes is that the Siletz Indian tribe centuries ago used to really like of the area of Devil's Lake. Then one night when a group of warriors was dispatched across the lake, massive tentacles burst forth from the waters destroying the canoes. The warriors where then flung around, beaten against the water and debris, and died from drowning or injury. From then on the lake was called Devil's Lake.
The lake itself was formed around 14,000 BC, but remains connected to the ocean via a 120ft river. At it's deepest goes down about 22ft. The lake's salinity I'd assume is freshwater since it has fresh water fish living there. However given that there is such a short river (shortest in the world apparently) connecting the ocean to the lake, I'm not sure. Perhaps it's somewhere between fresh and brackish...who knows. Anyways cephalopods (squids, octopi, and nautiluses) are not supposed to be able to survive in freshwater (excepting a species of squid that is able to survive in brackish water) and yet those are the only things with tentacles that I think would match the description of the offending monster. Reports have circulated around the world however of chance encounters with cephalopods that appear to be living in freshwater, some apparently have even attacked people.
Assuming that by some chance the legend indeed tells of an encounter with some unidentified cephalopod what type could it be? I think the giant and colossal squids are dead in the water in this case (no pun intended) due to the lake's depth being to shallow for creatures of their size. Perhaps it was some other semi-largish squid, yet I don't feel a squid could attack the way the one in the story given their body shape in general. That leaves us with the octopus (because nautiluses are totally out of the question since they don't get really large at all) which I think could attack in such a manner much easier then a squid.
Now the Giant Pacific Octopus is the largest known octopus and actually lives here in the Pacific Northwest. It can survive in a variety of depths, but does not the reach a size in which it can trash canoes, excepting of course it wound up in one. So maybe it was an unknown octopus of large size capable of surviving in semi-fresh water despite the fact cephalopods generally can't. Or perhaps the more likely scenario is that it was an fluke accident that the octopus grew to such large size to begin with, with conditions in Devil's Lake being just right for it to thrive in spite of what we know about cephalopods. Either way, it's all fun conjecture until all this talk about tentacled beasties gets someone eaten by a Cthulhu spawn.
Sources and Further Reading:
History & Legend
Welcome to Lincoln City, Oregon
Also be sure to check the links throughout the post, especially the book I mention in the beginning!