Murdered by Pirates

Obviously the Dread Pirate Roberts does leave some captives alive or Westley really would be dead and there would be no movie - or no book for that matter, and no Dread Pirate Roberts to continue the legacy either. It is your typical scare the children to sleep and eat their vegetables boogy man myth.

It didn't have to be someone from his ship

Perhaps someone saw from a distance his ship being attacked and inferred that everyone on it had been killed. It's a bit of a stretch, but plausible.

Dread Pirate Roberts

This is not only a comment on the nitpick, but also the other comments. Does it really matter how they found out? Maybe it was just an inference from the fact that Wesley's boat never reaches its destination. as far as the legacy and everything, we hear why The Dread Pirate Roberts saves wesley. 'I simply said please'. Wesley tells the story of the dread pirate roberts while walking through the fireswamp with Buttercup. When roberts was ready to retire, he would go on land find someone, train them, and then hire new crew, calling the new guy Roberts.

It's because...

The ship never got to it's destination. They could probably assume that it was the Dread Pirate Roberts, because he seems to follow a schedule (later, Prince Humperdink said 'The Dread Pirate Roberts is always around that area (I forgot which area) during this time of the year').

Prisoners

But we know the Dread Pirate Roberts DOES take prisoners, because he took wesley prisoner.

NO PRISONERS

The dread pirate Roberts DOES NOT take prisoners...Wesley was ONLY an EXCEPTION. The ONLY time Roberts broke his code. Even Wesley himself says that he (the dread pirate) never takes prisoners. Wesley was the one and only exception.

Remember, he's not so dread...

You guys are all forgetting that the REAL DPR (Dread Pirate Roberts) is retired and living in Patagonia. The DPR who supposedly killed Westley was Cumberbund or something like that. As Westley explains to Buttercup, it's all reputation, it's what people believe. Not necessarily the truth.

She "knew" the Dread Pirate Roberts Never let them live

"If the Dread pirate Roberts never leaves captives alive, who is there to tell Buttercup that Wesley has been murdered by pirates?"\r\rTherein lies your answer. Buttercup only knew that Westley had been captured by The Dread Pirate Roberts. However, she also knew that the Dread Pirate Roberts never lets his prisoners live. So, logically, she assumed that if Westley had been captured by Roberts, there would be no way he would survive. She could not have known of the little scam---no one did.

\r(By the way, it wasn't only Westley whom he spared---each successive Roberts spared his own "replacement" Roberts.)