You can open this side quest in a small bedroom in Monstro Town. Enter the first door on the right from when you pop up from the hole in the corner. Go to sleep by turning off the lights and let Mario dream.
Pay close attention to the statements of the Three Musty Fears. They will give you clues on where to find their specific flags. Head back outside and enter the door on the left most of the screen to get back into the map screen.
Greaper’s Flag
Greaper’s flag can be found behind the flower sign right at the entrance of Rose Town.
Head on over to the back of the sign and hit the “A” button.
The Big Boo’s Flag
The Big Boo’s flag is located between the “O” and “A” in the “GOAL” sign of the track at Yo’ster Isle. Just go right in the middle of “O” and “A” and hit the “A” button.
Dry Bones’ Flag
Dry Bones’ flag can be found underneath the bed in Mario’s Pad
You don’t have to duck down to get it. Just touch the side of the bed and hit the “A” button.
Winning the Ghost Medal
Once you have all three flags in your possession, head back to Monstro Town and sleep again in the same room from earlier. This will trigger another dream sequence.
Once the cut scene is over, you can hit the “B” button and check out what you’ve won!
