Beat butter and cream cheese in a medium mixing bowl with an electric mixer on medium speed for 30 seconds. Add 1-1/2 cup powdered sugar and baking powder; beat until combined. Beat in egg and vanilla. Beat in as much flour as you can with the mixer. Stir in remaining flour with a wooden spoon. Divide dough in half. Cover and chill for 1 hour or until easy to handle.
Bake in a 375 degree F oven for 8 to 9 minutes or until edges are set. Transfer cookies to wire racks to cool. Meanwhile, for the powdered sugar icing stir together 4 cups sifted powdered sugar and 1/4 cup milk. Add additional milk, 1 teaspoon at a time, until it reaching drizzling consistency. Glaze tops with half of the powdered sugar icing. Using a decorating bag fitted with a fine plain tip, outline edges and door or windows with remaining powdered sugar icing. Immediately sprinkle outlines with white nonpareils. Makes about 42.