Preheat oven to 350 degrees. Lightly spray a 1 1/2 quart baking dish with non-stick spray; set aside.
Microwave potatoes according to package directions. In a large bowl, mash half the potatoes with the milk, soup mix, and 1 tblsp of the butter. Spread mashed potatoes evenly into prepared baking dish. Sprinkle 1/2 cup of the cheese, half the onions, and half the bacon on the mashed potatoes. Add half the remaining unmashed potatoes to the dish in an even layer.Repeat layering cheese, onion, and bacon. Top with remaining unmashed potatoes.
In a small saucepan, heat the cream, nutmeg, and salt and pepper to taste over medium heat to just under a boil; pour over potatoes. Sprinkle remaining 1/2 cup of cheese on top. In a small bowl, stir together bread crumbs and paprika. Melt the remaining 2 tblsp butter; stir into the bread crumbs. Sprinkle crumbs over the top of the casserole.
Bake for 35 to 45 minutes or until bubbling and browned.
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