Combine potatoes, water and salt in 2-quart saucepan. Cook over high heat until water comes to a boil. Reduce heat to low. Cover; cook until potatoes are fork tender (15 to 20 minutes). Drain.
Mash potatoes with potato masher or electric mixer, gradually adding 2/3 cup milk. Stir in sour cream and dressing mix.
Spread potatoes evenly into 1 1/2-quart casserole. Pour remaining milk over potatoes. (DO NOT MIX.) Dot with butter. Cover; refrigerate 4 hours or overnight.
Heat oven to 400°F. Bake uncovered for 20 minutes; stir. Continue baking for 20 to 30 minutes or until heated through.
Variation: To prepare 12 servings, double all ingredients except use 1 1/4 cups milk. Cook potatoes as directed above. Mash potatoes with potato masher or electric mixer, gradually adding 1 cup milk. Stir in sour cream and dressing mix. Spread potatoes evenly in 3-quart casserole. Pour remaining milk over potatoes. Continue as directed above.
For faster heating, place potatoes in microwave-safe casserole. To heat, microwave, covered, on HIGH, stirring 2 or 3 times, until heated through (15 to 18 minutes).