Prepare a baking sheet by lining with parchment paper.
Measure out the cereal into a large bowl and set it aside.
In a microwave-safe bowl, add the chocolate chips, butter, and peanut butter. Microwave in 30-second intervals, stirring, until melted and smooth.
Stir in the vanilla extract.
Pour melted chocolate mixture over cereal and stir to coat. This may take a little bit of time.
In a gallon size zip top bag, pour in 1 cup of powdered sugar, the cereal, and then the remaining 1/2 cup of powdered sugar. Seal bag and shake shake shake.
Once well coated, dump out the muddy buddies onto the prepared baking sheet to cool to room temperature.