I'm just speaking for the area I'm from instead of saying it's a general misconception, because I don't personally know if anyone anywhere else has encountered this myth.
I know this burial ritual is not actually true, but if I ask people I know, "what's unique about the way Jews are buried in Jewish cemeteries?" I'll commonly hear that they're buried standing up. I've asked people I meet from all over the state this question, and more often than not I'll hear that response. It seems to have almost been universally believed by my grandmother's generation (born 1920's). In fact, she was the first person I had ever heard it from.
Does anyone have any idea how this weird myth could have started? Was there ever something that happened in the past that this could have derived from? It just seems like such a weird thing for people to believe, but it's something so many people I encounter seem to just have in their head as a random world fact.
The myth did not appear to have started from any anti-Semitic motive, is the first thing I will say. What I've found in research is that the myth appears to have originated due to Prague burials. Jews layered bodies on top of one another there, due to 15th and 16th century restrictions on buying land. Jews cannot disturb the graves of the dead, and so bodies were layered on top of one another. But Jews also cannot get rid of tombstones, so many lay side-by-side, so closely that someone might get the impression that they were buried upright as the only explanation for why they are buried so closely together. Sometimes, they may have been buried as many as 12-layers deep.
This has become something of an urban legend since then, from what I can tell, but it definitely isn't true. It may have been caused by anti-Semitism (Jewish land buying restrictions were anti-Semitic), but the rumor itself is not anti-Semitic.
I'm not familiar with any other explanations, and the true origins of such a myth are hard to definitively pin down, but that's one potential explanation I've seen in books before.