This is a congruent conflation of “look who’s talking” and “that’s the pot calling the kettle black”, both referring to pointing out hypocritical behavior. The best and most common malaphors are mixtures of phrases that have the same or similar meaning.
This is a mash up of two similar meaning idioms – “going to pot” (declining or getting worse) and “going to hell in a handbasket” (a situation quickly headed to disaster). My guess is that the speaker did not want to say the word “hell” and so “pot” came to mind. Moreover, my notes indicate this phrase was spoken in the 70s, so it is possible that the speaker indeed had “pot” on his mind….