Regarding the questions, yes any engine can be modified to use ethanol, and you just re-jet the carb to much richer, so that you can use that fuel.
However, as I previously stated, there is no real benefit achieved by that, unless you raise the compression ratio to take advantage of the higher octane rating of the ethanol.
If you do that, you'll gain the benefits of the extra compression and torque that comes with it, because the ethanol fuel has higher octane and can sustain the added compression. That's where the extra power would come from.
As far as diesel fuel or kerosene being added, I'm not too sure about that. I never tried it, nor do I know anyone who has tried that.
And yes, definitely the ethanol has a propensity to absorb water, so it can cause quite aggressive corrosion in the fuel system.
Special internal fuel tank coatings are suggested, and also corrosion resistant fuel lines and fuel system parts.
Many racers will run a small amount of gasoline thru the engine at idle speed until they are sure no ethanol is left in the system, before they store the bike for the next race. This removes any ethanol from the fuel system during the storage time, so that it helps eliminate corrosion during storage.
Also, Redline Racing makes a fuel additive for ethanol which helps to reduce corrosion issues and adds a top cylinder lubricant because the ethanol runs pretty "dry" in terms of upper cylinder lubrication.
These same things apply to methanol too..
Racers and hot-rodders like to use E85 in racing classes that require "pump gas" because it is available at the pump, and it gives higher octane than any other available pump fuel. So, it technically meets the "pump fuel" requirement, but allows them to run higher compression.
Ethanol does require some additional care and maintenance by the owner, but if the compression is increased and gives more power, and the owner is satisfied with the power increase vs the added maintenance, it can be a viable alternative.
However, because it does run about 30% richer because of its fuel characteristics which need more fuel to make best power, you run out of fuel about 30% faster than you would with gasoline. So, you can't go as far on a tank of fuel.
The E85 is cheaper per gallon, but you have to look at the fact that you will use 30% more fuel to go the same distance. If the premium gasoline is more than 30% higher priced than the E85 is, then E85 is a good deal. If the premium gasoline is not much more expensive than the E85, then the gasoline is a better deal for economy.
Regarding the political aspects of the argument, ethanol isn't a very viable option to replace gasoline, as long as it is made from corn. That eats into the food supply, and the land that is used to grow it, which I don't think is a very good idea. And there's not enough land to grow enough corn to replace gasoline as a fuel for everybody anyway.
There are other biomass crops that could be alot better for ethanol production than corn is. Hemp is one of them, but it's illegal.
So, there are pros and cons about it as fuel.
The one good thing that I see about it is that there is finally a high-octane product at the fuel pumps again, and racers love it.
They can have an "alcohol burning" hot rod on the street now which was previously a track-only option. As long as they are willing to do the additional fuel system maintenance, and can put up with the poor fuel economy.
Currently, there are very few E85 gas stations located around the country. I think they might be more prevalent in California, but there's only one of them in my whole state. Even in populated states like NJ, there are only a few E85 stations. So, this makes is a potential problem if you have your engine set up to run E85, and you run low on fuel, and have no available E85 station where you are when you run out of E85 in your tank. If that happens, and you have a high compression engine that NEEDS the E85, you can't use gasoline to get you home.