The draft for this sequence, where the dwarfs make merry and entertain Snow White with the yodelling "Silly Song", was posted up by Hans Perk here. Although unfortunately none of the sequene directors are mentioned on the animator draft, we know from elsewhere (such as this article) that this sequence was directed by Wilfred Jackson, and that unlike with "Spooks" (sequence 4D) directed by storyman Perce Pearce, Jackson does not seem to have had any story input for this "Entertainment" sequence.
Barrier mentions that the storymen who *did* work on it had trouble fitting the individual dwarfs' personalities into the sequence, and I can understand that -- it's the sort of situation which, like the deleted soup-eating sequence, lends itself better to generic slapstick than character acting, but they pulled it off pretty well. It does seem a little surprising to see Grumpy in particular joining in with the music-making, but at least he's playing a pipe organ (which audiences might assoicate with churches, and therefore think of it as a more "serious" instrument?), sits with his back to the others and gets exasperated when Bashful disrupts his timing. One might expect Doc to take more of a supervisory role - trying to conduct or something - but I guess unlike most "control freaks" Doc does know how to unwind. :)
Snow White can feel more timeless somehow than other Disney features... Silver Age features can be criticized for the way they "modernize" traditional stories, but Disney's innovations, such as the dwarfs' names, feel much more universal or, from seventy-odd years later, traditional than the likes of, say, Robin Williams' humor as the Genie in Aladdin.
This sequence is an exception though. The lyrics to the song root this film in a fairly specific time frame and context. Happy's verse ("I love to dance and tap my feet, but they won't keep in rhythm) is a comical apology for inadequate dancing, which plays on the sort of excuses a woman might make for untidy hair ("You see, I washed 'em both today and I can't do nothing with 'em!"). It reminds one of songs like Irving Berlin's "The Best Things Happen While You're Dancing") from White Christmas (1955), which includes lyrics about being a "guy with two left feet". I don't really have a problem with that, though, despite its lack of consistency with the rest of the film (would the dwarfs *really* know about women trying to make their hair look nice? Would they really wash their feet, come to that?) I might feel differently if I lived in the '30s, though.
One shot of the dwarfs dancing is missing from the draft, except in a hand-written note "3 follows" after scene 2. Conversely, the half-minute scene 11 is listed in the draft but is nowhere to be scene in the film. The scene is described as "Sneezy sings verse - starts to sneeze - puts finger under nose". Maybe they decided one sneeze gag was enough for this sequence. I wonder if the lyrics to the verse survive?