Ethanol soaks up water until the mix is 5% water. That is why pure grain alcohol is 190 proof(95%). You can't distill any more water out of it.
They use special piping and filters on E85 handling equipment to minimize moisture pickup, but no matter what, unless the tank volume is sold fairly quickly the fuel will be picking up moisture.
EtOH has a larger amount of energy in it than methanol. You'll get better fuel economy and a much hotter run. Besides the usual tuning tricks of head gaskets, head shape, venturi size, etc. the manufacturer is going to have to make additional changes such as larger fins, spaced wider, on the head and cylinder, different(more) taper on the sleeve, different(probably looser) fit between the sleeve and case, and an insulated needle valve.
I just got done running a Zenoah 200 ei. Going to spark ignition may be the way to go if somebody can design a 1/2 oz. ignition module. This thing started and ran just like a well-built glow motor. No points or coils. The module automatically retards the spark for one or two flip hand starts, and then matches it to the rpm for max power.