It definately works on MoP mobs (either that, or a LOT of the people I do random dungeons with are leaving cloth on bodies when they loot them, which i doubt).
Extra cloth drops are permanently active one you have the northrend cloth buff.
Only downside i have noticed is that, in groups, ANY other tailor can also see your extra cloth drops, which allows them to snag them from mobs if you are not fast enough.
(Ie, in a dungeon, you aoe down a 5pack of mobs. When the Non Tailors loot their mobs, there is a chance that an extra bit of cloth will be left on them, which you can then grab. ALL tailors can see this extra cloth tho, so it is first come, first served.)