To make meatballs: In a large bowl, combine beef, onion flakes, bread crumbs, salt, nutmeg, eggs and milk.
Preheat oven to 400 degrees F (200 degrees C).
Shape mixture into 1 inch balls, and place into a 9x13 inch baking dish; bake in preheated oven for 10 minutes. Lower heat in oven to 350 degrees F (175 degrees C).
To make sauce: In a large saucepan over medium heat, mix vinegar, sugar, mustard and 1/2 cup water; bring to a boil, and boil for 1 minute. Mix cornstarch and 1/2 cup water; add to saucepan, and boil for 1 minute more.
Add sauce to cooked meatballs, and bake in preheated oven for 45 minutes, basting occasionally.