I think you can't make general comments about standards for genre outside of specifics. If I write a wildly inaccurate story about the Holocaust or the American Revolution, as long as the inaccuracies are incorrect representations out of truths widely known (rather than inaccuracies which correspond with commonly believed urban legends), I'm not going to change what people know about the Holocaust. If I write a wildly inaccurate story about the Vermont eugenics project, I am telling the only story people are ever likely to hear about the Vermont eugenics project. Presented as historical fiction, it will stand in as history because it will be the only information the readers will ever get about the actual history. As you say with Catherine Called Birdie, nobody minded a little bit of inaccuracy about gender presentation given how much you can expect readers to understand medieval Europe already. I think that higher expectation for lesser known topics is entirely justified.

The Prydain Chronicles do not even extratextually draw any connections to the Mabinogion except in as much as they use similar names. I think it's very different to draw elements from a mythology than it is to set a fiction in a historical time.

Moreover, in the context of this particular book we are dealing with a historical time which is recent, little-known, and refers to atrocities committed on people who are still today suffering the results of those atrocities. There's a big difference between that and making Arawn a bad guy, or letting Catherine had a 20th-century perspective on individuality and gender.

I think if the book had been powerful, beautiful, and moving, the inaccuracy might have been even more important. Because then the book would have had readers, lots of them.