We allowed a kraken to kill off most of a goblin clan before dealing the killing blow to both. While gathering our spoils, I took a couple of kraken teeth. The dwarves we were working for are masters of many trades and one was able to fashion a lute out of one of the kraken's teeth and had it encase in mythril. It's now a battle lute.
This thing will be terrible to tune but it should never break.
My bard uses a hammered dulcimer that he carries on his back (with straps, kinda like a backpack). It has legs, so when he breaks it out (for either combat or performance) he stands it up like a keyboard.
I gave my Bard/Fighter an instrument that fits his military background and role as an officer commanding other soldiers in battle. I chose a brass "samba whistle" (which is capable of making three tones), which he carries on a chain around his neck. A normal whistle did not sound enough like a musical instrument to me, three different tones allow at least different harmonies to be played for different spells. For normal performances, he can still play the flute, horn and drums.