Cook pasta according to package directions, omitting salt and fat.
While pasta cooks, combine water and flour in a small bowl; stir well with a whisk. Heat oil in a large nonstick skillet over medium-high heat. Add garlic and mushrooms; sauté 2 minutes or until mushrooms are tender. Add milk and next 4 ingredients. Bring to a simmer, and cook 3 minutes or until cream cheese melts and sauce is smooth, stirring constantly with a whisk. Stir in flour mixture. Add nutmeg and chicken. Bring to a boil; reduce heat, and simmer 4 minutes or until sauce begins to thicken, stirring occasionally. Add butter, stirring until butter melts. Serve sauce over hot cooked pasta; sprinkle with walnuts before serving.