Preheat oven to 350°. Grease and flour a 10-in. fluted tube can. Combine first six ingredients; beat on low speed 30 seconds. Beat on medium 2 minutes.
Transfer to prepared pan. Bake until a toothpick inserted in center comes out clean, 40-45 minutes. Cool in pan 10 minutes before removing to a wire rack to cool completely.
Meanwhile, for sauce, in a heavy saucepan, mix sugar, cornstarch and salt. Whisk in milk. Cook and stir over medium heat until thickened and bubbly. Reduce heat to low; cook and stir 1-2 minutes longer. Remove from heat.
In a bowl, whisk a small amount of hot mixture into egg yolk; return all to pan, whisking constantly. Bring to a gentle boil; cook and stir 2 minutes. Remove from heat; stir in butter and vanilla. Cool completely. Fold in whipped cream; refrigerate until cold. Serve sauce with cake; if desired, sprinkle with nutmeg.
Editor's Note: This recipe was tested with commercially prepared eggnog.