Robin,
I also heard the same story when I was growing up in the Lutheran Church. Before the days of the internet it was much harder both to reseach & spread the word on these kinds of myths.

"Why should the Devil have all the good tunes?" is an attribution I try to correct whenever I hear it. It is actually a sort of problematic statement anyway. It can justify using the devils tunes, or it could be a statement encouraging the writing of church music that has as much appeal.

I thought the attibution on the quote would be easier to find. Here it is:
"He did not see any reason why the devil should have all the good tunes." Sermons. From E. W. Broome, the Reverend Rowland Hill. Hill lived from 1744 to 1833.

This from Bartlett's Familiar Quotations, Fourteenth Edition, Copyright 1968.