I'm from Ashburnham originally, and I own copies of both the 1886 Stearns town history and the 1965 Holden history, so I know a little about this. There are three stories here that appear to have gotten confused.
First, the aforementioned wreck was on the Fitchburg main, which loops through South Ashburnham, not the Cheshire, which extended north out of the village. (I hadn't known there were locomotive remains on the site. Next time I'm down that way I'll check 'em out.) Second, there WAS a derailment on the Cheshire during the famous 1936 spring flood. I have a photo of it in a rotogravure from The Boston Globe published at the time. I'd have to dig the paper out of a trunk, but if memory serves,
the locomotive toppled over as well as several passenger cars. The derailment happened near the Ashburnham-Winchendon line. Third, there is a very old rumor to the effect that there is a locomotive resting in a small pond adjacent to what is now Route 140 between Winchendon and Gardner, this from a wreck that allegedly occurred on the old Worcester-to-Peterborough branch (gone since 1959). I first heard this tale some 45 years ago when I was a little boy. I've heard it a number of times since, from a number of people --- most recently a year ago from an uncle of mine in Westminster, as he and I happened to drive by the spot. (He wasn't the person who initially told me.) A few months back, I wrote to Mike Richards, who writes an historical column for The Gardner News, to see whether he could trace the rumor. He wrote me back saying he had never heard the story, but was intrigued by it and would see what he could do. I haven't yet gotten a follow-up response. Given what we know about Harry Frye's extensive investigations, I very much doubt its veracity, but I am curious to know how the tale might have gotten started.
By the way, that 1913 wreck in Ashburnham Centre (where the train went through the back of the freight house and plowed up the hill) has long been said to have been the result of some mischievous Cushing Academy students greasing the track. Whether truth or rumor I don't know, but Dr. Hazel Fosgate Morse, a local history buff (and curator of the Historical Society museum) whom I knew years ago, told me it was the case.
She would have known; she was around when it happened and had a memory like a steel trap. (Retired college English professor.)
Hope this helps clear things up.