Melt butter in large saucepan over medium-high heat. Add onion; cook and stir 3 to 5 minutes or until tender.
Increase heat to high. Add mushrooms and sherry; cook and stir 3 to 5 minutes or until liquid is reduced by half.
Stir in broth; bring to a boil. Add cheese, half-and-half, potato flakes, salt and pepper; cook and stir just until cheese is melted and mixture is thoroughly heated, reducing heat if necessary. DO NOT BOIL. Garnish each serving with chives or croutons.