In a large bowl, cream butter and sugar until light and fluffy. Beat in egg and eggnog. Combine the flour, baking powder, salt and nutmeg; gradually add to creamed mixture and mix well. Divide dough in half.
On a lightly floured surface, roll out one portion at a time to 1/4-in. thickness. Cut with a floured 3-1/2-in. star cutter. Cut out centres with a 1-1/2-in. star cutter. Line baking sheets with foil; grease foil.
Place large star cutouts on prepared baking sheets. Sprinkle 1 teaspoon candy in centre of each. Repeat with remaining dough; re-roll small cutouts if desired.
Bake at 375° for 6-8 minutes or until edges are golden brown. Cool on baking sheets for 5 minutes. Carefully slide foil and cookies form baking sheets onto wire racks to cool.
For icing if desired, beat confectioners' sugar, rum extract and enough eggnog to achieve drizzling consistency. Drizzle over cooled cookies if desired. Sprinkle with coloured sugar if desired. Let stand until hardened.