Mix sugar and flour in saucepan. Rub with fingers to blend. Whisk in milk and water. Bring to boiling; cook, stirring, until thick, 3 minutes. Remove from heat.
Place yolks in bowl. Stir in 1/2 cup hot sugar mixture. Stir yolk mixture into sugar mixture in saucepan. Bring to simmering over medium-low heat, 1 to 2 minutes; do not let boil. Remove from heat. Stir in butter and vanilla. Spoon into bowl. Cool over an ice water bath until cool to touch, about 5 minutes.
Spoon into 8 dessert glasses; refrigerate. Garnish with cream.