Remove peel of orange with vegetable peeler; set aside.
In a medium saucepan combine 1/4 cup of the milk, the vanilla-flavored baking pieces, orange peel, and nutmeg; whisk over low heat until baking pieces are melted. Remove orange peel. Whisk in remaining milk and heat through. Remove from heat. Stir in vanilla.
Serve warm in mugs. Add a marshmallow ghost, dollop with whipped cream, and sprinkle with nutmeg, if desired.