Like most myths, this one is based on a kernel of truth. Bach was not famous in his own time, certainly not an international superstar like Handel. Mendelssohn did organize a performance of the St. Matthew Passion, and that concert did much to popularize Bach. But it would be inaccurate to call Bach "forgotten" up to 1829, and Mendelssohn is not solely responsible for launching Bach's posthumous career. Though the myth of Mendelssohn "discovering" Bach might lead one to imagine him as a musical Indiana Jones stumbling across a dusty manuscript, eyes widening as he gradually realizes its brilliance, that just wasn't the case.Since you're knowledgeable about this topic, I'm curious to know how widely revered Bach, Mozart, & Beethoven even were in their own times. Not as much as they are today, surely? I'm aware about Bach falling out of style until Mendelssohn, & Mozart on the same track if not for his wife's efforts.
Instead of marking the beginning of the Bach revival, Mendelssohn's performance was part of a larger Bach appreciation movement that was already underway. The first biography of Bach was published in 1802 by Johann Nikolaus Forkel. Beethoven himself proclaimed that Bach (German for "brook") should have been named Meer ("sea") because his music was so great. Not bad for someone whose existence was allegedly unknown at that point! (source)