As far as I'm aware, the Koran doesn't ban music, but other Islamic literature frowns upon it, so it depends upon what people are taught and, hence, what they believe. Like the other main religions, Islam has its fair share of selective believers. Some Muslims seem to think music is practically the Devil's work, enticing the innocent into sin, but I've been to plenty of clubs in Islamic countries - and seen plenty of belly dancers - so it's clear they aren't all such controlling killjoys. Let's face it - the snake charmers play their pipes - and even the muezzin sounds like he's singing when he calls the faithful to prayer. :o)
Having said that, I believe that some Muslims are moving further towards fundamentalism. For example, twenty years ago a burqa in Cairo would have been hard to spot, but not so now. Perhaps that's why the students you mention are being withdrawn from music lessons.