means Covered in, full of, or resembling mud; or, of ideas and water alike, cloudy and unclear.

from From Old English 'mudde,' the word for soft wet earth, a cousin of similar terms across the Germanic family (compare Dutch 'modder' and German dialect 'Mott'). The '-y' is the same humble suffix that turns 'rain' into 'rainy' — so 'muddy' is simply 'full of mud,' a word as plain and earthy as the stuff it names. Its figurative use for murky thinking — 'muddy reasoning' — follows the obvious image of stirred-up water you can't see through.