In a large saucepan over low heat, melt butter and chocolate chips, stirring constantly. Remove saucepan from heat and stir in vanilla and walnuts. Cool mixture 8 to 10 minutes, or until cool but not to the point of hardening.
Fold in marshmallows and stir until well coated. Spoon half the mixture lengthwise down the center of an 18-inch piece of wax paper. Shape into a 12- x 2-inch log and place at one edge of wax paper. Sprinkle 1/2 cup coconut over remainder of wax paper.
Roll log over coconut, evenly coating the outside of the entire log. Wrap log firmly in wax paper, folding ends snugly. Repeat with the other half of marshmallow mixture and remaining 1/2 cup coconut.
Refrigerate until firm (At least 2 hours or overnight). Unwrap each log and cut into 1/4-inch slices.