do SignalTap modules have to be instantiated at the top level of a design

Naturally it could be instantiated anywhere since hierarchy doesn't mean anything in the fitter, but you might have to bring signals to the top-level to get them out JTAG. Looking at the megafunction though, the only signals are the inputs of what you're tapping and clock. So the JTAG connection must be back-doored just like with an .stp file. So no, there wouldn't be any reason to put it at the top-level or signals to bring to the top-level. Out of curiousity, how come you're using the megafunction?