In a large pot over medium-high heat, combine milk and 3 1/2 cups water, the salt and the bay leaf. Bring to a boil. Slowly whisk in polenta, stirring well. Stir in squash. Reduce heat to medium-low, cover the pot and simmer, stirring occasionally, until polenta and squash are very tender, 30-40 minutes. If the mixture gets too thick while cooking, add a little more water to the pot. Remove the bay and stir in butter, parmesan and black pepper. Taste and adjust seasoning if needed.