I have been playing bass for a while now, and I just recently noticed a habit I seem to have when playing with a pick. (I can play with my fingers as well, but lately a pick has come into play more often than my fingers)

When I need to mute a note, or cut it short, I notice that I am often muting it with part of my palm on my picking hand. For example, when playing the verse of "Obstacle 1" by Interpol, I mute the A string by lightly pressing my picking hand on it as I pick notes on the D and G strings. Is this a habit I should break out of?

It only applys to when I'm playing with a pick, but I was wondering if I should stop doing this, and maybe try to exclusively mute notes/strings with my actual playing fingers.
Doesn't sound like a bad habit to me. Sounds pretty natural. I have fooled around on the bass somewhat and it comes natural because I'm a guitarist. Perhaps the only bad habit you may have is playing with a pick. :P
If it's blue, then it MUST smell good.
Playing with my fingers doesn't suit certain songs. I tend to use whatever the actual bassist used on the song.
I understand that fully. You would have to be a bass GOD to be able to play really fast or complex like most artists. I was really only kidding. I just know that there is somebody that claims to be the bass pro and will come on here and flame about you using a pick. But like I said before, deadening the strings with your picking hand is perfectly OK. I used to mute with my fretting hand until I found that it was much easier with the picking hand.
If it's blue, then it MUST smell good.
You want to be a great among the bass players and learn how to play bass like a freak of nature. There are basic steps that one needs to acquire first

1. Learn the correct hand placement - Your right and left hand need to be in the correct position in order to play the bass effectively.

2. Learn the notes on the fretboard - This is the basics you must know. You must know where the notes are in relation to the neck because it will make learning songs and playing with other musicians much easier.

3.Tempo - Get a drum machine or a metronome and play along with them everyday.

Go through Acoustic Guitar Lessons online once and you get the clear picture for bass playing.

The only part confusing me here is that I'm looking at the bass tab for that song, and there is no muting. It's all straight bass line, so I'm unable to even figure out what you're talking about.
When I say muting, I mean cutting off a note. Some people do that with their playing hand, (which I do) but I also use my palm on my picking hand at times to cut off notes. It just happens naturally with me.

edit: I am aware of muting generally being associated with dead notes, or x--x--x to use tab "speak". Sorry if my post was confusing at all.