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A lot of papier-mâché figures were hung from the arcade ceiling.
Literal
Arcade ceiling [locative-(omitted)] many papier-mâché-[subject-(omitted)] were-decorated-[state-ていた].
張りぼて is a compound from 貼る (to paste) + 張り (stretching) + ぼて (shell/frame) — originally referring to papier-mâché figures and by extension to anything 'flashy but hollow' like a façade or stage prop. The ~ていた form marks a past continuous / completed state, here the figures 'had been put up and were on display'. Notice the omitted particles: neither the locative に nor the subject が is spelled out — common in written description for brevity.