Heat the milk so that it is just bubbling, be careful not to scald the milk. You want it to be warmed throughout so make sure to continuously stir while heating.
In a large bowl, add butter (or margarine) and sugar. When milk is heated, pour milk in while whisking ingredients together. The butter and sugar should dissolve in the warm milk.
When milk, butter, sugar mixture has reached 110°F, add in yeast and let the yeast bloom (produce bubbles) in the bowl.
Sift flour and salt together. Add 1/2 cup of the flour salt mixture and stir to create the batter. (Adding the flour in now helps prevent flour clumps from forming when we add the rest later).
Add in egg and whisk thoroughly.
Stir in remaining flour mixture. Cover and let rise for 1 hour.
Remove dough from bowl and turn onto a floured surface. Roll out into 1/4 inch thickness and cut into squares. Cover and let rise for 1/2 to 1 hour.
Bring oil in heavy bottomed deep walled pan to 325°F. Plop 3-4 beignets into the oil and let fry for 1-2 minutes on each side, turning once. The outside should be a deep golden brown.
Remove and place onto a cooling rack. Dust immediately with powdered sugar. Serve warm.