Line a large baking sheet with parchment paper. Put the cereal in a large mixing bowl. Set both aside.
Put the milk chocolate chips into a microwave-save bowl. Microwave for 30 seconds on high. Stir. Repeat in 30 second intervals until chocolate is melted. Stir in the peanut butter.
Using a large spoon, drizzle the melted chocolate over the cereal - coating evenly.
Place the powdered sugar in a large brown paper bag and carefully scoop the chocolate coated cereal into the bag with powdered sugar. Seal the bag and shake it to cover the cereal with the powdered sugar.