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Place a 16x12" sheet of heavy-duty foil on a large rimmed baking sheet. Toss onion and chiles with oil in a large bowl; season generously with salt and pepper. Mound vegetables in center of prepared baking sheet; top with sausages. Place another large sheet of foil over. Fold and crimp all edges tightly to form a sealed packet. DO AHEAD: Can be made 4 hours ahead. Chill. Let stand at room temperature for 15 minutes before continuing.
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Preheat oven to 350°. Alternatively, build a medium fire in a charcoal grill, or heat a gas grill to medium-high. Bake or transfer packet to grill and cook until onions and peppers are softened (open the packet carefully to check; steam will escape), about 25 minutes.
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If using an oven, turn on broiler. Carefully cut open packet. Arrange sausages on top if necessary. Broil until sausages are browned and crisp, about 5 minutes. If grilling, remove sausages from packet and grill until browned and crisp, about 5 minutes. Serve with mustard, sauerkraut, and bread alongside.