Though I am primarily a literacy specialist, I teach educational psychology to people preparing to be teachers. Last year I had a student (a music major of course) who wanted to do her master's research paper on how music improves school achievement. She could not find any hard data supporting her hypothesis. Neither could any of my earlier students find direct links between music or art and literacy or school achievement. Music can make people happy, it can bring people together, familiar songs can reach people with alzheimers and some other brain disorders, BUT music does not transfer into literacy.
That said, you can introduce phonemic awareness with songs in which word sounds are featured if you point out the sounds before and after singing without being too didactic.
You can use songs that are linked to picture books. John Langstaff worked with a terrific illustrator to do books with folk songs, and there are many others.
You can introduce new background knowledge linked with songs (because background knowledge is essential to reading comprehension).
You can take things that children have to learn and set them to tunes.
Often older children who are turned off by writing are willing to write songs, especially if they can record their songs.
Anything that enriches language learning will improve literacy learning. Anything that makes the classroom welcoming will improve the atmosphere for learning. But learning doesn't usually transfer from situation to situation, and music itself does not strengthen emergent literacy.
I'm not good enough at Mudcat to know how to contact you directly, but if you want to contact me, I'd be happy to share sources about literacy learning and titles of children's books linked to folk songs. Have you contacted the Children's Music Network (www.cmnonline.org) or the International Reading Association (www.reading.org).