Butter square pan, 9x9x2 inches. Place marshmallows and butter in large microwavable bowl. Microwave uncovered on High about 1 minute or until mixture can be stirred smooth. Stir in cereal. Press in pan.
Let stand at room temperature about 1 hour or until firm. Cut into desired shapes such as cubes, squares or rectangles. Or, use small cookie cutters (spray with cooking spray) to cut into festive shapes such as gingerbread people, stars, holly leaves, trees, etc. Cover loosely with waxed paper or foil; set aside until serving time.
In 2-quart saucepan, mix sugar and cocoa. Using wire whisk, gradually stir in milk and half-and-half until well blended. Cook and stir over medium heat until thouroughly heated (do not boil). Remove from heat.
Add chocolate chips; stir constantly with whisk until chips are melted and mixture is smooth. Stir in vanilla. To serve, pour hot chocolate into 4 mugs or cups. Top with whipped cream and sprinkles. Thread desired number of marshmallow bites onto decorative skewer or pick and place in mugs.