Reserve half of one candy bar for garnish. Break up remaining bars. Heat and stir broken candy and water in a small saucepan over low heat until melted. Cool 20 minutes. Grease and flour three 9 x 1-1/2-inch round cake pans.
Combine flour, baking powder, and baking soda; set aside. Beat butter or margarine in a large mixing bowl with an electric mixer on medium speed 30 seconds. Add the 1-1/2 cups sugar; beat until fluffy. Beat in egg yolks; beat in melted candy. Add flour mixture and buttermilk alternately to candy mixture, beating after each addition. Wash beaters thoroughly.
Beat egg whites in another bowl until soft peaks form (tips curl). Gradually beat in the 1/4 cup sugar; beat until stiff peaks form (tips stand straight). Fold into batter. Divide batter evenly among prepared pans.
Bake in a 350 degree F oven for 30 minutes or until a wooden toothpick inserted in centers comes out clean. Cool in pans on wire racks for 10 minutes; remove cakes from pans. Cool.
To serve, spread jam between layers; frost top and sides of assembled cake with Whipped Cream Frosting. Chop reserved candy; sprinkle on top of cake. Makes 12 servings.
Whipped Cream Frosting
Beat whipping cream with sifted powdered sugar and vanilla until soft peaks form (tips curl).