Pre-heat oven to 180 degrees Celsius (160 degrees Celsius fan-forced). Line 18 x 1/3 cup capacity muffin holes with paper cases.
For the cupcakes, place butter, sugar and vanilla in the bowl of an electric mixer. Beat until pale and creamy. Add eggs one at a time, mixing until well incorporated.
Fold in the flour, baking powder and milk alternately, mixing until batter is smooth. Spoon between paper cases and bake for 18-20 minutes. Allow to cool.
For the icing, combine all ingredients and mix well. Spread over cooled cupcakes and allow to set.
For the marshmallow, pour water over gelatine and set aside. Combine sugar and water in a saucepan and heat until sugar has dissolved. Increase heat and simmer until mixture reaches 115 degrees Celsius. Remove from heat and stir in gelatine mixture. Meanwhile, beat egg whites until firm peaks form, then slowly drizzle in the sugar mixture until all incorporated. Beat for approx. 10 minutes until mixture is glossy. Spoon into a piping bag with a star or round nozzle and pipe down two sides of the cupcake top. Sprinkle with coconut and allow to set. Spoon jam between marshmallow and serve.