In a large bowl, stir together sherry and sugar. Add scallops and marinade for 30 minutes.
Remove scallops from the marinade. Center one scallop and water chestnut on a strip of bacon. Wrap bacon around scallop and water chestnut. Secure with a toothpick. Repeat with remaining scallops and water chestnuts.
Arrange on a broiling pan.
Broil for 10 mintues, turning once, until bacon is cooked.