Blend cake mix, pudding mix, water, eggs and oil in large mixer bowl. Beat at medium speed for 4 minutes. Stir in coconut and nuts. Pour mixture into 3 greased and floured 9-inch layer caked pans. Bake at 350 degrees for 35 minutes. Cool in pans for 15 minutes, remove and cool on wire rack. Fill and top cooled cake layers with Coconut Cream Cheese Frosting.
Coconut Cream Cheese Frosting:
Melt 2 tablespoons butter in skillet. Add coconut, stirring constantly over low heat until golden brown. Spread on absorbent paper to cool. Cream 2 tablespoons butter with cream cheese. Add milk. Beat in sugar gradually. Blend in vanilla. Stir in 1-3/4 cups coconut. Spread on top of cooled cake layers. Stack and sprinkle with remaining coconut.