You're right, Barbara, that dementia patients can relate to and be involved with music on several levels.   For instrumental music it seems to matter less how "familiar" the music is than how engaging it is -- melody, beat, tempo, mood, etc.

And if people are engaged by way of dancing or playing rhythm instruments or learning simple, repetitive refrains or even humming along, music that's not "old & familiar" to them can work just fine.

As for people getting tired of "the same old songs," I find that is much more common in assisted living and (especially) independent living communities than in memory care units. This is not to say that advanced dementia patients don't respond to new or less familiar music. It's just to say that when dementia (short-term memory) is fairly advanced -- you know, when the person tells the same story over and over several times a day -- people almost never get "tired of" hearing the same joke or story or song over and over. (This is at once a blessing and a curse.)

The point is to know your audience. "Dementia" covers a pretty broad range of cognitive impairment, and it's not uncommon to have quite a range within a given audience.

My suggestion is to try out various songs, old and newer, familiar and less familiar, and make careful note of how people respond.   
As I said above, if I tell a joke or sing a silly song and get 2 out of 20 residents breaking into a grin or laughing out loud, I consider that a success even if the others don't seem to "get" the humor. But if only 10% of my audience seems to be responding to the music, something needs to change.