Dutch covering himself to hide isn't even necessarily that inaccurate. If you go by what McTiernan says in the commentary, what the Predator sees through his mask through the movie isn't even actual heat vision, but a modified one (they had to cover everything with ice water to make the actors stand out). What we see at the end is the unfiltered stuff. So when Dutch covers himself with mud, he's covering himself with something the mask has been programmed to filter out, and so disappears.
Boom, movie logic.