Thanks for all the support. One mitten done and I think it looks fine. Hasn't been blocked yet, but the thumb turned out great. In the end it didn't matter that I did the cast on with multiple colors because I didn't use the pick up that way. I decided to use the neutral color to pick up along the seam (you can see this in the third picture).
So to round out the poorly written pattern this is what I'd do:
when you come to the thumb opening K2 as usual, then knit in pattern the next 18 stitches onto scrap yarn. then continue the pattern around the mitten body until you come to the thumb opening. at that point cast on (not pick up) an equal number of stitches that are on the scrap yarn (so 18 sts) in a neutral color. then continue the mitten body. this means your scrap yarn has 18 sts and your mitten body is back to the number of stitches you started with. finish the mitten body.
to finish the mitten thumb, using a neutral color wool, put the 18 sts on the scrap yarn on your needles, pick up 2 stitches to the side to close any holes and then pick up 18 sts from the neutral row above and then 2 stitches on the other side of the thumb. you will have 36 pattern stitches + 4 extra stitches that need to be decreased away.
k17 in pattern k2 together twice when you come to the extra side stitches (dec 2), k16, k2 together twice (dec 2). you'll now have 36 stitches and can continue the thumb in pattern.
On to the left mitten!