In a large saucepan, combine marshmallows and butter. Cook and stir over low heat until melted and smooth. Meanwhile, in a small resealable plastic bag, combine water and food coloring. Add coconut; seal bag and shake to tint. Set aside.
Place the cereal in a large bowl; add marshmallow mixture and stir until combined. Press into greased muffin cups. Let stand until serving. Remove nests from cups; top with tinted coconut, jelly beans and Peeps.