Ethanol is a volatile fuel very similar to gasoline, meaning your engine should be able to operate on it without too much difficulty. Henry Ford was using ethanol in his cars almost from the very beginning.
As said above, it has a corrosive effect on rubber seals and other metal parts, so those need to be modified or protected (by using synthetics or stainless steel, etc.).
Both the U.S. and Brazil make automobiles (GM & Ford in both countries) that can run on a flexible mixture of gasoline and ethanol. Our latest computer controlled, fuel injected engines make this easier than ever before. In Brazil, they use a simple oxygen sensor on the exhaust side to sense the fuel mixture and adjust the settings for optimum combustion allowing a mix anywhere between 0 and 100% ethanol. The sensor is already there for emissions controls. I've seen it quoted a number of places that it only costs $150 at the factory to make any gasoline engine a flex fuel engine.
The EPA does not recommend converting existing cars that are not already flex fuel to burn E85 (they worry the emissions won't be right). There are already something like 5 million vehicles on the road in the U.S. that are flex fuel adapted at the factory.
The most famous opponent of the energy situation for ethanol is David Pimental of Cornel University. He has tried to add in every conceivable bit of energy needed to grow corn and turn it into ethanol in an effort to discredit the use of corn. I understand he includes the energy to make the farm machinery, the gasoline that ethanol factory workers use to communte to work and even the lunches that are consumed when they are at work. Recently another researcher, Tad W. Patzek from UC Berkeley has revisited Pimental's work and now travels around the U.S. speaking out against ethanol.
The official USDA study of ethanol shows a positive gain in energy (from the sun when the kernals were produced) of 1 unit in producing 1.64 units out (1:1.64). That includes planting, fertilizing, harvesting and converting the corn to ethanol. Corn is a "high input" crop meaning that it needs soil tilling, lots of fertilizer for high yields, pesticides, herbicides, etc. Even with that high input, it has a positive gain in energy.
Corn is not the best feedstock for ethanol.
You may have heard the President's State Of The Union speech where he mentions switchgrass. Switchgrass can be converted to fuel in a variety of ways including enzymes to "digest" the cellulose into sugars that can then be fermented into alcohol (ethanol). Switchgrass is a very "low input" crop. It is native to the U.S. and is pest resistant, drought resistant and actually builds the soil. It is a perennial that does not need to be replanted. Its roots reach down 6-10 feet in the soil once it is established. It brings up nutrients from the deep clay. If about a third of the plant is left after harvest, it will build up top soil year after year instead of depleting the top soil as other crops like corn do.
Corn ethanol is only a place to get started with a renewable substitute for gasoline. It does have a positive energy balance (in spite of Pimental's calculations). However, even if we used every last acre of corn for ethanol, we'd still only replace about 12.5% of our gasoline with it. Corn yields about 371 gallons of fuel per acre per year. Switchgrass is estimated to yield about 1000-1500 gallons per acre per year (still being studied). The energy balance for switchgrass is estimated to be 1:4 (a much stronger energy gain than corn).
See my chart:
You can find a lot of information on using E85 (85% ethanol) at this forum:
http://e85forum.com/viewforum.php?f=1
Just about every car on the road today can run 10% ethanol (E10) now. 77% of all of the gasoline sold in Iowa is E10. We've been using it for years with no problems in just regular automobiles with no modifications what-so-ever.