Yes you can use milk instead of water in instant mashed potatoes.
I prefer to use milk in instant mash potatoes myself because it gives it a much better creamier taste.
I pour some milk into a pan and then heat the milk up and then once the milk has gotten hot I then pour the instant mashed potatoes into the pan of milk and then stir them up.
Next I add some butter while the potatoes are still hot so that the butter melts on the potatoes.
I also love to add some onion powder to the instant mashed potatoes which gives it an even better flavor.