Studies I've read over the years have found that the water remaining in alcohol from distilling is not only NOT detrimental, but actually beneficial. The water vaporizes, using some of the heat of combustion so that the rapid flash burn of alcohol slows down, plus the steam lends a small additional amount of expansion.
The studies were done in the '70's and were related to home-brew alcohol fuel for shade-tree alcohol-engine conversions. The thrust of the argument was that removing the last percents of water were not necessary for the small scale experimenter. The other conclusion in those studies: distillation consumes almost as much energy as the alcohol contains, so you need to use free or surplus energy to make it economical (such as solar or waste heat from heating).
Then there's the "feed stock" efficiency - the whole "burning food in cars" thing.