Preheat oven to 350. Line standard muffin cups with paper baking cups. Drain pineapple, reserving juice. Set pineapple aside.
Beat reserved pineapple juice, cake mix, pudding mix, eggs, oil, and nutmeg in a large bowl with electric mixer at low speed 1 minute or until blended. Increase speed to medium; beat 1 to 2 minutes or until smooth. Fold in pineapple. Fill muffin cups 2/3 full.
Bake 20 minutes or until toothpick inserted into centers comes out clean. Remove cupcakes from pans and cool completely on wire rack.
To toast coconut, spread evenly on ungreased baking sheet; bake at 350 for 4 to 6 minutes or until light golden brown, stirring around on baking sheet frequently.
Frosting. In a large bowl, beat together the butter and cream cheese with an electric mixer. With the mixer on low speed, add the powdered sugar a cup at a time until smooth and creamy. Beat in the vanilla extract.
Once cupcakes have cooled, frost tops of cupcakes with frosting and then sprinkle with toasted coconut.