When I first came to St. Paul, Minnesota, some 30 years ago, there was something called a "dago sandwich" which was frequently served in old-fashioned cafés. It was a slice of meatloaf topped with red spaghetti sauce on a bun or white bread. The name, the sandwich, and that type of café have all disappeared now, as far as I know.

Certainly "dago" wasn't ALWAYS meant to be derogatory, but it often was, often enough that I think it's a good idea to put the word into permanent retirement.

If I were publishing a book of old songs, along with citations to the original source, I would print the word "dago" but I would add a footnote: "Substitute 'Spanish' [or whatever] in performance."

People who perform in public for purely entertainment purposes are under no obligation to be "historically authentic." In fact, I would argue we have a higher obligation to make our performances conform to contemporary standards.

It might be different if you were working at a historic site and performing a historic reenactment, and you were attempting to teach a lesson about history. In such a situation I would consult with the director of the site and follow his or her advice.