There's some misunderstanding about ethanol going on here. The short version of what alcohol does in a gas tank is that it acts a lot like water does or would, if water and gasoline mixed well. Water can cause rust and make gaskets and seals not designed to handle water swell up and erode away (dissolve), and engines and fuel systems not designed with this in mind can have problems when you use alcohol or alcohol bends as fuels. Make the engine block out of aluminum instead of steel, treat exposed iron and steel surfaces so they won't rust, and use gasket materials designed with both gasoline and alcohol in mind, and ethanol fuel blends work just fine and can actually improve combustion efficiency, which reduces tailpipe emissions.
Warning: Science content!
From a chemist's point of view, alcohols have many useful properties, one of which is they react much like water does when in a chemical reaction. This is so much the case that, when studying organic chemistry and the instructor wants to really test a student's understanding of chemical process, teachers will take a standard reaction equation that many students memorize by rote, and substitute an alcohol like "EtOH" (ethanol) for water in the reaction, then ask what the product will be to test their understanding of the process instead of their ability to memorize a drawing or description.
So, chemically, alcohol acts a lot like water.
"Oil and water do not mix." You've probably heard that line often. Without going into too much detail as to why this is true, water (and many other) molecules act like little magnets; in other words they are polar and have "+" and "-" sides. Take two polar molecules and put them together and they do what magnets do, they line up, with the positive side of one molecule facing the negative side of the other. Polar molecules like to stick together.
Other molecules, like those in oil and gasoline are "non-polar," meaning they do not act like magnets. In fact, they don't like polar, magnet-like, molecules at all. Ever hear the line "Oil and Water Do Not Mix?" Well, they don't mix because oil (and gasoline) is made up of non-polar molecules that don't like magnets, and water is a polar molecule that is a magnet and really prefers the company of other magnet-like molecules.
Got it? Good, because (and this is where things get interesting) alcohol breaks the rules. It swings both ways, and will mix (chemists say "go into solution") with either water or oil. Oil and water may not mix, but alcohol goes well with everything.
Which can spell trouble for an engine that isn't designed to take that abuse, because alcohol and rubber mix, so rubber gaskets and O-rings are a bad idea if you're using alcohol. Paper fiber gaskets, which remain intact when you use gasoline, get mushy. Alcohol and iron or steel mix, too, which is bad, because it causes rust.
These problems are not insurmountable. Modern car engines -- anything built since 1980-something -- use materials that are designed to deal with low levels of alcohol in the fuel. "Flex-fuel" vehicles (like my Ford Ranger) are designed to use fuels that are mostly alcohol.
The cool thing about alcohol is we can make it instead of having to mine it out of the earth and refine it (which is very energy-expensive), and Brazil has been very successful at doing just that. Recognizing in the mid-70s that the rising cost of imported oil would likely wreck their economy, Brazil started switching to ethanol fuels made from sugar cane (instead of corn). Between their push to ethanol and other efforts to become more energy independent, almost half of their total energy needs are met from renewable sources and they have transformed themselves from being dependent on imported energy to run their economy to becoming a net exporter. As a side benefit, the air quality in their cities has improved and their total carbon emissions reduced even though their automobile and other energy use has increased.
Of course there are costs associated with ethanol production, including environmental impacts like deforestation. Environmental degradation goes hand-in-hand with all forms of energy production, oil, coal, ethanol, uranium, even solar
and wind. The hard part is finding ways to minimize the damage while improving the country's long-term economic output. Not trying to be political here, but Brazil, the number eight economy in the world and rising, has done a pretty good job of both.