Vlad Tepes was trying to free his country from the Turks, and knew he had to be as bloody as the Turks of his time period could be. He became worse, killing off his nobles for he did not trust them and appointing new nobles in their place, nobles who would lose their positions if he was overthrown. The Turks did retake his Country (And had to make a deal with the new nobles to do so) but Vlad was a problem for the Turks till his death.
Now, in addition to the Turks, he hated the Germans. The Germans ran the towns where trade occurred in his Country. The Germans being good business men would gladly sell out Vlad's Country for their Economic Gain. Vlad could not kill ALL of the Germans like he did with his Nobles, but he could kill enough to make the rest of the German's fear him more than the Turk.
Thus Vlad's reputation in Germany was terrible, one of Hatred based on what he did to the German Towns in his Country. Bram Stoker took these German Legends and wrote Dracula. Thus the West gets its impression of Vlad based on a group he went after as Traitors to his country.
As to Hungary's King Matthias Corvinus contribution to Vlad's reputation, you must remember Vlad ruled his Country Twice with a 16 years (I may be wrong as to the number of years) difference. During this time period he was Kept by Hungary's King Matthias Corvinus just to scare the Turks (Who were than on the Border of Hungary and would soon conquered it). The Scare would not be effective unless Hungary's King Matthias Corvinus made every effort to further enhance Vlad's Reputation.
For more on Vlad See:
http://www.donlinke.com/drakula/vlad.htm