What is wrong with translating as: "This blouse is much prettier than the dress"
Más bonita is "prettier", not "much prettier". Obviously your sentence is grammatically sound and conveys the meaning. They just can predict all the possible answers.
Watch out for the autocorrect on spelling. I misspelled 'blouse' and the program wanted to put in 'bolus'!
A different question: I have noticed in several of these comparative sentences, the first item compared is "este/a [blusa]" and the second is "el/la [vestido]." Is that a convention we should learn, or are we going to find later that the second item can also be preceded by "este/a," "ese/a" or "aquello/a"?
It depends on the context: in a comparison, one could say "[this] is more pretty than [that]" or "[this] is much worse than [that]". In english, it wouldn't make any sense to say "worser", "better-er (mas mejor)" etc. I believe both should be accepted by DL
Your examples are flawed. Better is already the comparative, as is worse.
Good, better, best.
Bad, worse, worst.
Pretty, prettier, prettiest.
Beautiful, more beautiful, most beautiful
More pretty is an error in English. It's common, it's widely accepted, but it is still an error.
Much has nothing to do with how we form a comparison. You can add much to any of the above examples.