Is it bad practice to cite MSc dissertations?
Cite it. It's a source you used, so you need to cite. 

In addition, good explanations are also good for readers who are looking for an introduction.




  didn't go through the usual peer review process 


Where I am, a Master thesis is reviewed (+ graded) by two professors, and that can include a list of required corrections/clarification for the final version. A paper is possibly reviewed by 2 PhD students who have barely published their first paper...


  was almost by definiton written by a rather inexperienced mathematician


so is everyones first paper. Including possibly reviews: I know PhD students who were put to the task of writing a review paper right with their literature study to familiarize them with their thesis subject.



There are things in my Diplom thesis that I wouldn't write or do like that any more (now, 15 years later: science and my personal knowledge have advanced, after all - which is as it should be), though the downright mistakes I've found are mostly typos or otherwise the correct expression is clear. So it's rather that I have different expressions/sentences/wording now that I think are more clear/better or explain things I could only observe back then.
But then, the same is true for some of my (peer-reviewed) papers.