We study the nonequilibrium many-body dynamics of a cold gas of ground-state alkali-metal atoms weakly admixed by Rydberg states with laser light. On a time scale shorter than the lifetime of the dressed states, effective dipole-dipole or van der Waals interactions between atoms can lead to the formation of strongly correlated phases, such as atomic crystals. Using a semiclassical approach, we study the long-time dynamics where decoherence and dissipative processes due to spontaneous emission and blackbody radiation dominate, leading to heating and melting of atomic crystals as well as particle losses. These effects can be substantially mitigated by performing active laser cooling in the presence of atomic dressing.