Well, I do like the idea, and I can't get the image of Link running around to collect music notes in a timed puzzle making a song (ala Super Mario Galaxy
http://www.youtube.com/watch?v=34HDgv9Hm5s).
I think that this could work, but I don't know how effective it would be if it were restricted to one dungeon.
Throught most games you are continually learning songs and that works great was we all know and in LA the game is all about collecting instruments. I think an entire game where you know more songs and use them to pass more puzzles is a great idea. In OOT you use songs to open dungeons or drop blocks or call upon- scarecrows, and I think that's the closet thing that we've seen in a Zelda series, but I think they could do more.
The thing I would be afraid of is it being restricted to one dungeon. Unless you sort of borrowed musical items and the gave them back at the end of the dungeon, the songs/items would just sort of sit stagnant in your inventory. I think LA handled that sort of thing well where you took Bow-Wow on a walk and then you couldn't return him until you got into the next dungeon at which point you could finally give him back.
So I'm in favor of a music dungeon, but it would have to be something inherent in the dungeon, like musical notes you have to grab in order to make a song, or you use special borrowed items.