Lose the water altogether...it makes it a sticky mess.
My recipe is as follows:
10.5 oz bag Kraft Jet Puffed mini marshmallows (NO substituting)
1/2 cup Crisco (this goes in with the MM's)
5 cups powdered sugar
I microwave the MM's + Crisco in a large bowl for 30 seconds, then I shake the bowl from side to side, and mic for 25 more seconds.
If you were to look in at this point, you couldn't really tell that they're melted, and that's good...it shouldn't look liquidy.
I then use a butter knife to stir, and that's when they appear melted and oily from the Crisco.
To that I add the 5 cups of (non sifted) PS...all at once, then I stir it a little with the same butter knife, then I knead with one hand while holding the bowl with the other, in my empty kitchen sink. Never tried it on a table...too messy!
Towards the end when it seems that it won't take in anymore of the PS, I microwave the blob for 30 seconds, and knead, till it's all in.
By the way, I flavor my MMF only if it's a cake for an event...I mostly do practice or just-for-fun stuff, so I don't bother then.
Also, the Crisco right in the bowl is a tip I read here, posted by jeking. Absolutely changed my caking...love it!
I use this recipe to make figures, purse handles, everything...it's easy to roll, never sticks, I don't need PS or cornstarch...the Crisco is enough.
* When I know that I'll be coloring a majority of the batch a dark color, I cut the Crisco to 1/3 cup.