It comes from Jazz - where to play flashy runs on a trumpet, for example, requires a good embouchure - basically the area round your mouth. Rather than go through all this explanation, they just referred to chops - as slang for mouth - and this then came to be applied to any instrument, even if it didn't require a well-developed embouchure.
Of course the point is that embouchure requires constant painstaking practice and becomes more difiicult as you get older - so it was a commonly-used phrase that "so and so" had lost his chops!
So - he could no longer physically play the virtuosic stuff on his horn!
CHOPS?.... 
