Ethanol's power A/F ratio is 9.6:1, far richer than petrol at 12.5-13:1.
So mixing ethanol into current petrol without a fuel recalibration causes the engine to run lean by the calculated ratio difference.
You can build an engine for ethanol, just like methanol, BUT the WHOLE fuel system has to made for it.
You would FAR better off building for E85.
And yes, any alcohol is HYGROSCOPIC, correct spelling.
http://dictionary.reference.com/browse/hygroscopic