Spicy and sweet, this is a Margarita for the semi-adventurous spirit. The heat this drink imparts is actually subtle, and that is due to the use of the sweeter reposado tequila versus an unaged blanco. (Don Julio is one of the better options.) The sweetness of the cognac-based Grand Marnier and agave nectar also help to quell the jalapeno's spiciness, making the drink very palatable and pleasing.
It also helps considerably if you remove the seeds from the pepper beforehand, as that is where most of the heat comes from. For this drink, slice the pepper and remove the white placenta and all seeds. This will lend a savory pepper flavor with less spice and you can always use fewer slices to suit your taste. In most cases, one jalapeno can be used to create at least two drinks.
A word of caution: When it comes to any drink that uses peppers, attempting a "how hot can I make this" challenge is inadvisable -- let's just say that drinking overly spicy things is much different than eating them!