It is a genie. That's exactly what it means when she says "replace all the water in the world with milk". Genies hate people. They are malicious spirits that have been imprisoned by sorcerrers to serve them and their wishes. The only thing is that it probably isn't going to work because they are not omnipotent and have limited power usually. Enough to "fulfill a wish" of a greedy dude and fuck them over in the process, but not enough to destroy the universe.

Genies like to fuck with you, they would be fine killing everyone

The problem is you're trying to apply logic to magic. Magic doesn't do things logically, it just does them.

It's just more milk per milk

Now you have to define "water form". What percentage of dissolved constituents prevent water from being "water form"? Or is it how it looks rather than what's in it?

It's possible to have a brine solution of 25% salt that looks like ordinary water, at least at first glance, for example. Would only the H2O molecules in that be replaced by milk or would the salt be replaced as well?

What if I add food dye to a glass of water beforehand? That doesn't look like water any more, so would that get turned into milk? Would the dye stay?

How about if I mixed an emulsifier, oil and chalk dust into a glass of water beforehand? That's not milk, but it looks like milk. What would happen with that? And then we're back to percentages again, I guess.

What is water form? If I were to drink a glass of water, would it be in "water form?"