George and Lynne are most likely at a wedding. Either that or some black tie do for charity, but let's say wedding. The dress is black tie and George has a white tuxedo because he likes to think he is James Bond. Whoever's wedding this is has gone to the effort for an impressive disco area backdrop of coloured dots.
Lynne starts this conversation because the wedding has a live band who have either just come on or just finished. They are far more acceptable than the last band George and Lynne saw. Who Paula is, we don't know. What we do know is that she dated a musician. This has certainly got George interested. He has never met a musician before and it is something he's quite keen to do. He almost met a saxophonist, but that didn't work out. Music is a new interest of George's and he certainly wants to know more about it. However Lynne never reveals the instrument of choice of Paula's ex-boyfriend.
George looks unimpressed for one of two reasons. The first is that he was really interested in the musician part of the conversation and now that Lynne has decided not to reveal the instrument, he has to go back to another conversation because once Lynne says a conversation is over, it's over. The second reason could be because the backing singer that the musician was caught in bed with was actually male and we all know how much single sex relationships were frowned upon in the late 70s/early 80s. This piece of knowledge has also dampened George's new found interest in music as all it did was confirm his suspicion that all musicians are gay.