Bring a large pot of water to a boil. Add the pearl onions and cook until tender and the skins peel off easily, about 2 minutes; drain and rinse under cold water. Trim the root ends and pinch the opposite ends to remove the skins.
Combine the brussels sprouts, 1 cup water, 2 tablespoons butter, the sugar and 1/2 teaspoon each salt and pepper in a large skillet over medium heat. Cook, stirring occasionally, until the brussels sprouts are bright green and crisp-tender, about 10 minutes. Add the pearl onions and cook until the skillet is almost dry, about 5 minutes. Add the remaining 2 tablespoons butter, the sherry and thyme. Cook, tossing, until the vegetables are glazed, about 2 minutes; season with salt. Top with chives.