Sauté onion in butter in a large skillet until tender; add sausage, and cook over medium heat until sausage is browned. Combine flour, salt, and pepper; add to skillet, stirring until smooth. Cook 1 minute, stirring constantly. Gradually add milk; cook over medium heat, stirring constantly, until thickened and bubbly.
Stir in hominy, green pepper, and chiles; cook over medium heat, stirring frequently, 10 minutes or until thickened and bubbly. Remove from heat, and sprinkle with cheese. Serve immediately.