In an electric skillet over medium-high heat, cook the bacon, stirring, for 2 minutes. Add the tasso and cook until the bacon is brown and the fat is rendered. Remove with a slotted spoon and drain on paper towels. Drain off all the fat but 2 tablespoons. Add the onions and bell peppers to the fat in the pan and cook, stirring, until soft, about 3 minutes. Add the garlic and cook, stirring, for 30 seconds. Add the mushrooms, salt, cayenne, and herbs, cook, stirring, until soft, about 3 minutes.
Add the 1/2 cup of the reserved oyster liquor and the milk, and bring to a boil. Slowly add the grits, stirring constantly. Reduce the heat, cover, and cook, stirring occasionally, until the grits have absorbed the liquid and are plump, 20 to 30 minutes. Add the cream, oysters, and reserved bacon and tasso, and stir well. Cook over medium heat, stirring, until the edges of the oysters curl and the additional liquid is absorbed, about 5 minutes.
Spoon onto plates or into a large casserole dish to serve tableside. Sprinkle with the cheddar cheese, garnish with chopped chives, and serve.
Yield: 4 servings