I can't find dillen, though Shorter OED does have:

dilling - Now dial 1854. Darling; the last born of a family; dial. the weakling of a litter.

Perhaps it's a version of this in the darling sense. The song doesn't imply she's a whore, but maybe a woman of easy virtue!.

As regards the pronounciation of dolly as doley, that must be a recent change. Since first hearing the song in the 60s I don't think I ever heard it as other than dolly.

Mick