I am not an expert of Norse sagas, but read about them extensively in my interest of how the stories got down to us today. By trade I am a Classical Archaeologist, so take my information with a grain of salt. My immediate answer to your question would be two fold: first, that it is unlikely that the Sagas of the Greenlanders which describe Norse occupation of the Western Hemisphere, as we have them, were widespread or widely desired texts in the rest of Europe prior to the 17th century (nor, for that matter, the references to outer islands which inspired the original voyages in the 9th century), and second, that the Scandinavian/Icelandic knowledge of Vinland was not entirely sure of the nature of Vinland, where it was in relation to other locations, and that this confusion was passed via scattered exchanges to the rest of Europe piecemeal and never, as far as I can tell, wholly in one sitting.

The manuscript I know of that we have today of the sagas you ask about dates to the 1380s and 1390s. As Magnusson and Palsson argue in their introduction to a translation of the Greenland Sagas (1965 original edition), it is very clear that the people of Iceland had a very good knowledge of seafaring routes across their part of the world in the 14th century, from a long tradition of usage from the 9th century to that time. The sagas were clearly written down in other forms prior to the creation of the Flatyjarbok (the 1380s manuscript). The Flatyjarbok itself was written for an Icelandic farmer, Jon Hakonarson, by a local monk. Kirsten Wolf (2007) relates that the original scribe likely ceased work on the project sometime in 1387, when the King of Norway, whom the manuscript was probably meant for as a gift, passed unexpectedly. After being expanded again through to the 15th century, It likely stayed in Iceland until the 17th century, when it was shipped off and presented to the Danish King Frederik III, who recognized its value for his Kingdom's history. This was by no means the first news of the Icelandic sagas that reached Scandinavia; Bjarni Herjolfsson, the man who is related to be the first to sight America from the West, is said to have gone back to Norway and told individuals of the journeys. What is more, individuals of German descent travelled to the court of King Svein Ulfsson in Denmark, and write down clear accounts that relate to the travels of Icelandic Norsemen to the west (Gesta Hammaburgensis ecclesiae pontificum, c. 1075 CE). Thus, there is ample evidence to suggest that the sagas of the Greenlanders, or the raw stories that inspired the written forms, were at the very least known throughout the Scandinavian kingdoms and Iceland prior to the late 15th century. It is likewise unlikely that sailors in Western Europe were completely unaware of Iceland and the stories relating to Vinland. So why was their confusion about the possibility of a land that wasn't Asia?

One issue is that the Greenland sagas, and the stories that inspired them, were mostly in the realm of Scandinavian interest; it is likely they were confused through a long distance oral tradition down to Western Europeans. It isn't impossible that Columbus knew of a land to the Northwest beyond England and Iceland; in 1477, in a dubious note he relates sailing "100 leagues beyond Tile Island," a name which may relate to Iceland. But to argue that Columbus knew all these stories in their entirety would be a stretch in my opinion; while it is likely he heard inklings of the full story, maybe once or twice or a few times, he and other Western sailors likely had less interest in this history than did the Scandinavian and Icelandic sailors who accounted it as their own, and in any case likely heard indirect and vague knowledge anyways.

On top of this, it is not clear that the Scandinavian and Icelandic tradition which translated experience of Vinland and Greenland to the rest of Europe were entirely clear about the geographical situation of these locations. It is obvious they knew what the relationship was between Iceland, Scandinavia, Greenland, Markland, and Vinland; what is less clear is how they conceived of the relationship between Vinland, Greenland, and the rest of the world. I have seen pre Flatyjarbok references which relate Vinland to possibly being a part of Africa, but would have to track that reference down. But so far as I know, we have no knowledge that Vinland was widely concieved of as representing a new land between Asia and Western Europe, and that in fact, some regarded it as the edge of the world or related it to known other landmasses which had not been fully explored. Whether Asia was on the table, I do not know.

So to finally answer your question briefly; Columbus and other Western European explorers likely heard the stories of Vinland in some capacity, translated down through word of mouth. But there was little reason for the to believe Vinland represented an entirely new continent, and instead, they had every reason to continue to believe that these stories represented voyages to either A. the end of the world, or B. to some other landmass that was known. Without more knowledge, which European explorers eventually got by looking around (and committing human rights atrocities, never forget) in the places they rediscovered, the concept of an entirely unknown landmass would have seemed ridiculous or even impossible to most people.