Guys,
E10 is all well and good, but there's a few things you need to consider to get benefits out of it:
- AFR needs to be different, you need to run more fuel in the mix, you might be seeing less power because you're a tad lean
- Ignition timing needs to be considered like beerhead said
- Compression - Ethanol is increases your RON. If you build a motor for Ethanol, you'll be able to run higher compression ratio than straight petrol. Compression ratio = efficiency = more grunt!
As for the water issue, cam is spot on, the ethanol attracts water, which is why it's no good to let it sit for a while.
Rubbers these days should be fine, aim for Viton rubber and you will be fine. Cork gaskets in fuel pumps and carbies are also eaten by ethanol.
I'm building my 5k at the moment, and over time, I'm going to start getting the gear to build it to run a proper E85 ethanol tune - ignition curve control, wideband 02 to tune with etc. Just need to source good cheap ethanol to blend my own!