When The Master is handed the Sash of Rassilon, and later during his final confrontation with The Doctor, the cardboard construction and backing of the Sash can be seen several times.
(Around 13m 12s) As the Master exits to the left, just prior to the Doctor entering the room, the shadow of a boom mike moving upwards is visible on the right hand wall.
The Master has come to the end of his regenerations and his body is now decaying, hence his grotesque appearance. However, that doesn't explain why his clothing is decaying too.