Add the Chex cereal to a large mixing bowl.
In a separate, smaller microwave-safe bowl, add the chocolate chips, peanut butter, and butter. Place the bowl in the microwave and cook for 1 minute and stir. Continue to cook in 30 second increments until the mixture is completely melted. Stir in the vanilla.
Pour mixture over the cereal and use a spatula to gently stir until all of the Chex is coated.
Add the powdered sugar to a 2 gallon size ziplock bag. Scoop in the chocolate cereal mixture. Seal the bag and shake to coat.
Pour the Muddy Buddies out onto wax paper to cool. Once cool, place the Muddy Buddies in and airtight container or serving bowl.
If desired, carefully stir the colorful M&M’s or other holiday candy into the mix.