If using fresh pearl onions: Cut off the tops of the onions and score an "x" in the top. Bring a pot of water to a boil, add the onions and boil for 1-2 minutes until the skins are softened. Drain and rinse under cold water. Squeeze the onions to slip the skins off. Place the onions in a saucepan covered with about an inch of water. Add the bay leaf and peppercorns and bring to a boil. Reduce the heat and simmer steadily for 12-15 minutes if using fresh onions, or 5-7 minutes if using frozen onions (if thawed; add an additional minute if still frozen). Drain.
While the onions are boiling, melt the butter in a small saucepan. Whisk in the flour and continue whisking for one minute (this will cook off the flour flavor). Slowly pour in the broth and the heavy cream, whisking continually to prevent clumping. Add the Parmesan cheese, thyme, salt, pepper, cayenne and nutmeg (if using). Let it simmer for about a minute or until thickened. Stir in the onions and cook for another minute or two. If you prefer a thinner consistency, simply add a little more broth. Add salt and pepper to taste. If you prefer it a tad sweeter, you can also stir in a pinch of sugar.