Put the cereal in your large mixing bowl and set it aside.
Melt the chocolate and the peanut butter (and butter if you're using it) together, either in a microwave (stirring every 20 seconds) or over a double boiler. When it's fully melted and mixed together, add the vanilla if you're using it.
Pour the chocolate over the cereal and fold the mix to coat. You want everything well-coated, but be careful not to smash and break up the cereal while you mix. If necessary, add more cereal to use up the chocolate.
Let this mixture cool for about 15 minutes. The warmer it is, the more the chocolate will absorb the powdered sugar, and the more sugar you'll need to coat it all.
Coat the chow with powdered sugar, using about half of it and folding just like you did before. Then, let finish cooling for another 15 minutes, and add another coat of sugar.
If you want to separate the puppy chow from the excess powdered sugar, you can gently shake it all through a colander. Otherwise, just enjoy!