In a small saucepan, combine the milk, water, and unsalted butter. Heat over medium heat until the butter is melted and the mixture is warm (not hot). Remove from heat and stir in the honey. Allow the mixture to cool to about 110°F (43°C).
Sprinkle the active dry yeast over the warm milk mixture and let it sit for about 5-10 minutes until it becomes frothy. This means the yeast is active and ready to use.
In a large mixing bowl, combine the beaten eggs, sugar, salt, and nutmeg. Pour in the yeast mixture and stir to combine. Gradually add the flour, one cup at a time, mixing until a soft dough forms. You may need more flour for dusting.
Transfer the dough to a floured surface and knead for about 5-7 minutes, until it is smooth and elastic. Place the dough in a greased bowl, cover it with a clean kitchen towel, and let it rise in a warm place for about 1-2 hours or until it doubles in size.
Once the dough has risen, punch it down and turn it out onto a floured surface. Roll it out to about 1/2 inch thickness. Use a donut cutter to cut out the donuts and holes. Place them on a floured baking sheet and let them rise for another 30 minutes.
In a deep frying pan, heat oil to 350°F (175°C). Fry the donuts in batches, being careful not to overcrowd the pan. Fry for about 1-2 minutes on each side or until golden brown. Use a slotted spoon to transfer the donuts to a wire rack to cool.
In a small saucepan, melt the 4 tablespoons of unsalted butter over low heat. Stir in the vanilla extract, light corn syrup, and 1/4 cup of milk. Add the chopped milk chocolate and stir until smooth and glossy. Remove from heat and let it cool slightly.
Dip the cooled donuts into the chocolate glaze, allowing any excess to drip off. Immediately sprinkle the crushed kettle potato chips on top of the glaze for the perfect crunch.