My theory is that he needs to be in shadowy illumination for the magical darkness to kick in, so as long as he stayed in the darker parts of the room, he was fine.

I'd point out that MitD walking around without the umbrella is actually proof against the "RedCloak's EvilKitty Umbrella of Small Radius Magical Darkness" theory. If MitD needed the umbrella to stay cloaked, then why wouldn't he have been visible in the early scenes, or in the tower? Xykon could have had a spell cast on him, but that would be yet another custom spell, and one that's completely not referenced to, unlike the umbrella which we at least see the object itself, it not any explanation of it's properties or even a statement that it's magical. More reasonable would be to assume that MitD is


Just to be clear, I'm not trying to say that "RedCloak's EvilKitty Umbrella of Small Radius Magical Darkness" is impossible either, but let's look at the assumptions you need to make for each case:

1) The Umbrella
For the "RedCloak's EvilKitty Umbrella of Small Radius Magical Darkness" (RCEKUoSRMD) theory we must assume that Rich created a custom magical item with unique properties for the express purpose of hiding MitD without having a larger radius.
For my theory we need only assume that it's a normal pink umbrella.
2) Walking around without the umbrella in the tower
For the RCEKUoSRMD theory, we need to assume that either a custom spell was created, or that MitD was walking around in a spot of complete darkness.
For my theory we only need assume that MitD happened to be walking around in a spot of shadowy illumination, which his ability then turned into magical darkness. Alternately, the entire tower could be in shadowy illumination (it is abandoned after all), and that the deeper darkness around MitD was generated by his ability.

Neither of these assumptions is impossible, but my theory certainly seems to require less assumptions to be made, so I'd propose that it is more reasonable as the base assumption, rather than the other way around.

Unfortunately, as far as I can tell none of the FBS monsters currently proposed have anything like this ability, but it is something to look out for.