Combine ground beef, bread crumbs, onion, mil, salt, and pepper. Shape into balls. Fry on all sides in butter until brown. (You can choose to bake the meatballs, if you wish, but you may need to add additional fat to the pan for the sauce.) Place in a 2 to 2 1/2 quart baking dish.
To make Buttermilk Sauce: Add the 2 tablespoons butter to pan drippings. Mix flour, sugar, and dry mustard and whisk into the butter, making a light roux. Gradually add the buttermilk. Stir over low heat until the sauce is smooth. Add the beaten egg and cook 1 minute longer. Pour over meatballs in the casserole dish.
Bake in pre-heated oven for 30 minutes. Serve over rice or egg noodles.