The foreskin adds bulk to the penis, both when soft and when erect. I can't imagine where this fallacy originated, maybe someone with a circumcision fetish?
There's also the fallacy that cut guys have a bigger glans than intact guys. What happens in guys who have been cut is the skin is stretched really tight on the shaft which gives the illusion of a larger head while in intact guys the skin sort of bunches up on the shaft and behind the glans which makes the glans look smaller.