Combine sugar, corn starch and orange juice in large saucepan. Add 1 pound blueberries.
Bring to a boil over medium-high heat, stirring constantly; boil 1 minute. Stir in remaining 8 ounces of blueberries, orange peel and nutmeg; cook and stir 1 minute longer. Add vanilla. Serve immediately or refrigerate for later use.