Kobolds in Germanic Folklore
A Kobold in German folklore is a mischievous household spirit (geist) who usually helps with chores and gives other valuable services but who often hides household and farm tools or kicks over stooping persons.
Images of Kobolds were sometimes placed in gardens to attract them to come and work for a household. It was sometimes said that if you gave Kobolds human clothing for their labor, it made them think that they were now human, therefore too good to be a house “slave”. Perhaps this is why Kobolds originally appeared w/o clothing in the Monster Manual, etc.
The Wiki says of them:
The kobold (or kobolt) is a sprite stemming from Germanic mythology and surviving into modern times in German folklore. Although usually invisible, a kobold can materialise in the form of an animal, fire, a human being, and a mundane object. The most common depictions of kobolds show them as humanlike figures the size of small children. Kobolds who live in human homes wear the clothing of peasants; those who live in mines are hunched and ugly; and kobolds who live on ships smoke pipes and wear sailor clothing.
THE KOBOLDS [a]
(from the Sacred Texts website)
Von Kobolt sang die Amme mir
Von Kobolt sing’ ich winder.
Of Kobold sang my nurse to me;
Of Kobold I too sing.
THE Kobold is exactly the same being as the Danish Nis, and Scottish Brownie, and English Hobgoblin. [b] He performs the very same services for the family to whom he attaches himself.
When the Kobold is about coming into any place, he first makes trial of the disposition of the family in this way. He brings chips and saw-dust into the house, and throws dirt into the milk vessels. If the master of the house takes care that the chips are not scattered about, and that the dirt is left in the vessels, and the milk drunk out of them, the Kobold comes and stays in the house as long as there is one of the family alive.
The change of servants does not affect the Kobold, who still remains. The maid who is going away must recommend her successor to take care of him, and treat him well. If she does not so, things go ill with her till she is also obliged to leave the place.
The history of the celebrated Hinzelmann (http://www.sacred-texts.com/neu/celt/tfm/tfm087.htm) will give most full and satisfactory information respecting the nature and properties of Kobolds; for such he was, though he used constantly to deny it. His history was written at considerable length by a pious minister, named Feldmann. MM. Grimm gives us the following abridgement of it. [c]
[a] This word is usually derived from the Greek κόβαλος, a knave, which is found in Aristophanes. According to Grimm (p. 468) the German Kobold is not mentioned by any writer anterior to the thirteenth century; we find the French Gobelin in the eleventh; see France.
[b] In Hanover the Will-o’the-wisp is called the Tückebold, s. e. Tücke-Kobold, and is, as his name denotes, a malicious being. Voss. Lyr. Ged., ii. p. 315.
[c] Deutsche Sagen, i. p. 103. Feldmann’s work is a l2mo vol. of 379 pages.
Some Gamemasters prefer a more accurate mythological take on the varieties of fey creatures in their campaigns, but there is nothing wrong with choosing the typical Monster Manual-style Kobold, either. It is a matter of preference. Personally, I think both varieties are great fun in any campaign, but I pick between the two kinds based on the type of campaign I am running at the time.