Here's my take.
Peyton's arm strength was shot late in the season for one of these 3 reasons
1. He's old and seeing father time take its toll (doubtful)
2. He has a quad injury and that effected his velo (possible, but unlikely)
3. He is having residual issues with the neck and nerve surgeries and his velo steadily declined as the season progressed. At this point he's trying to figure out why. (Possible)
Based on the fact that he's been aware that his arm strength hasn't been there, he's had to adjust and mask the issue so teams don't take advantage of him. The Broncos did this by doing two things, placing more balance on the run game, and working shorter routes.
But, even Peyton can't ignore man coverage on receivers like DT and Sanders, and linebackers on Julius.
So when he's had to work and take shots down the field, he's had to let the ball go earlier, knowing full well he can't wait for the route to develop and zip it in there. So he's guessing on where he thinks the receiver will be. This leads to a number of inaccuracy issues. If the receiver gets jammed and doesn't release clean, its an overthrow. If the receiver gets rerouted off his intended line, its a pass that is wide or leading too far because there isn't enough time for the receiver to pick up the ball and adjust his route. If its a deep shot, the ball is in the air too long and the safety can make a play leading to more INT's or near death for Sanders as we saw weeks ago.
The pass to Julius early in the game was a lob that just got lucky in my opinion, he got a free release, was covered by a LB, and it was easy for Petyon to let it go knowing he'd be under it when he got to the ball.
Now why his short throws were so bad, I have no idea. Maybe he's got some serious nerve damage and isn't feeling the ball. Who knows.
But anyone of us weak armed guys who try to chuck a real football at a tailgate can tell you, once you try to push past your possible velo, the spiral goes and the ducks come out.
As for next season, I think he plays if he can determine why his arm strength failed late this year and its curable/fixable so that it doesn't happen next season. Barring that, I doubt we see him suit up to repeat what he had for the last part of this year.