Heat oven to 350. Line 18 medium muffin cups with paper baking cups. In small bowl, mix cream cheese, 1/3 cup sugar and egg; mix well. Stir in chocolate chips; set aside. In large bowl, mix flour, 1 cup sugar, cocoa, baking soda and salt. Add water, oil, vinegar, and vanilla; beat 2 minutes at medium speed.
Fill prepared muffin cups half full; top each with tablespoonful of cream cheese mixture. Srpinkle with 2 Tbsp. sugar and nuts. Bake at 350 for 20 to 30 minutes or til cream cheese mixture is light golden brown. Cool 15 minutes. Remove form pans. cool completely. Refrigerate leftovers. Makes 18 cupcakes