Blend cake mix, pudding mix, water, eggs & oil in large mixer bowl. Beat at medium speed 4 minutes. Stir in coconut & walnuts. Pour into 3 greased and floured 9-in. layer pans. Bake at 180ºC or 35 minutes. Cool in pans 5 minutes; remove and cool on rack. Fill & frost with Coconut-Cream Cheese Frosting.
FROSTING: Melt 2 tbs. oleo in skillet. Add coconut; stir constantly over low heat until golden brown. Spread coconut on absorbent paper to cool. Cream 2 tbs. butter with cream cheese. Add milk and sugar alternately, beating well. Add vanilla; stir in 1.75 cups of the coconut. Spread on tops and sides of cake layers. Sprinkle with remaining coconut.