In a large bowl, beat butter, cream cheese and sugar until light and fluffy. Add eggs, 1 at a time, beating well after each addition. Beat vanilla. Add flour; mix well. Transfer to prepared pans. Bake until a toothpick inserted in the center comes out clean, 40-45 minutes. Cool completely on a wire rack; remove paper.
For frosting: In a large bowl, beat butter until light and fluffy. Beat in confectioners' sugar and vanilla. Add enough milk to achieve desired consistency.
Using a serrated knife, level tops of cakes if necessary. Place 1 cake layer on a cake board. Frost top with frosting; spread raspberry jam to within 1/2 in. of edges. Top with remaining layer. Frost top and sides of cake with remaining frosting, reserving 1 cup frosting for decoration.
For fondant argyle: On a work surface dusted with confectioners' sugar, roll out green fondant into an 1/8-in.-thick rectangle. Using a 4-in. diamond cutter, cut out 10 diamonds. Repeat with blue fondant. Place fondant diamonds in alternating colors on the top and sides of cake, cutting in half to fit the ends.
Color reserved frosting red with gel food coloring and place in a piping bag fitted with a #2 piping tip. Pipe dashed lines diagonally across the fondant diamonds to create an argyle pattern.