Quarter and thinly slice mushrooms and chop onion. In a heavy saucepan cook mushrooms and onion in butter over moderate heat, stirring occasionally, until softened and any liquid mushrooms give off is evaporated. Add water and cream and simmer 15 minutes. In a blender purée half of mixture (use caution when blending hot liquids) and stir purée, Sherry, and salt and pepper to taste into mixture remaining in pan. Heat soup until hot and stir in chives.
