Combine sugar and 2 cups water in a large saucepan over medium heat, stirring until sugar dissolves. Add grape juice, next 3 ingredients and remaining 6 cups water.
Pour into 2 (one-gallon-size) heavy duty plastic zipping bags; freeze until solid.
To serve, place frozen mixture into a punch bowl; pour chilled lemon-lime soda over mixture. Stir to break up chunks until mixture is slushy. Garnish each serving, if desired.