In a large skillet, cook sausage over medium heat until no longer pink; drain and set aside. In a large saucepan, bring water to a boil. Gradually add the grits, salt, pepper and cayenne, stirring constantly until thickened. Stir in butter and cheese until melted. Stir in sausage.
Press into a greased 9x5-in. loaf pan. Cover and refrigerate for 1 hour or until cool.
Remove scrapple from pan; cut into 1/2-in. slices. In a skillet, cook scrapple in butter until browned on both sides, adding more butter as needed. Serve warm with syrup.