Engines will need to be redesigned to take advantage of ethanol. If I recall, something about ethanol oxygenating the fuel and being used to keep cylinders cool. This may help increase compression by reducing knocking.
The E85 engines are supposed to be more optimized for the fuel, and I think there's still other technologies in the lab that can boost ethanol performance. I think I vaguely remember ethanol being used to increase diesel performance (or it could have just been gasoline).
The problems are usually cost and politics. Not sure anyone wants our energy needs to compete with the food supply.
Oil is still relatively cheap.