I use E10 confidently in my mk1 1.8... i would be more worried about mixture issues than rust seeing as the watercooled heads are alloy, and that amount of water (once atomised with the fuel) is negligable compared to natural humidity or driving in the rain. Some of the new Saab engines are built to run on E85, and im not aware of any corrosion issues that have had to be addressed in the design of these.

syncro, i hope to see more ethanol generated from waste derived feedstocks (waste paper, corn stubble, green waste) rather than dedicated crops. I have a friend who is working on a plant being built in WA which hopes to do this.