Into large bowl, measure cereal then set aside.
In small microwaveable bowl, microwave chips and butter uncovered on High 1 minute. Stir then microwave about 30 seconds longer or until mixture can be stirred smooth. Stir in vanilla. Pour mixture over cereal, stirring until evenly coated. Pour into 2-gallon resealable food storage plastic bag.
Add powdered sugar; seal bag. Shake until well-coated. Spread on waxed paper to cool.
Add in M&Ms and stir. Store in airtight container.