Having, in my praise of primary source, told you that it gets you into wonderful bits of folklore, I will now tell you the pitfalls.
Yes, it can give you a wonderful, strange, exotic monster. Or magic item. Or plot. But then you have to introudce it to the readers. This can be a little tricky in that you are obviously familiar with it, but you have to remember that your readers aren't. And you can't rewrite Kate Crackernuts and expect people to be familar with the plot, as you could if you were rewriting Snow White with the queen as the good character Snow White herself as the villain.
Not to mention resistance from readers. Eastern European fairy tales are rife with dragons that ride horses and may, if the princess is pretty enough, marry her instead of eating her, but (as comments from my writing group made clear) some readers just aren't going to accept such dragons when the dragons they are familiar with couldn't possibly ride a horse.
And that's the easy part.
The bite comes when you are praised not for your cleverness in reworking but for your striking originality in the elements you stole. It can be hard -- not only from my own experience in writing, but when I comment on the original folklore, commenting on a story, I get back delighted thank yous: you noticed.