1Heat oven to 325°F. Spray 12x8-inch (2-quart) glass baking dish with nonstick cooking spray.
2In large saucepan, bring water, margarine, salt and 2 cups of the milk just to a boil over medium-high heat. With wire whisk, gradually stir in grits. Reduce heat to low; cover and cook 5 minutes, stirring occasionally. Remove saucepan from heat. Reserve 1/4 cup of the cheese for topping. Stir remaining cheese into grits.
3In large bowl, combine eggs, hot pepper sauce, pepper and remaining 1 1/2 cups milk; beat until well blended. Stir 1/3 of grits mixture at a time into egg mixture until well blended. Pour into sprayed baking dish. Sprinkle with reserved 1/4 cup cheese.
4Bake at 325°F. for 45 to 50 minutes or until slightly puffed.