I'm pretty sure that Ethanol is a higher octane than even super unleaded gas. You are correct though in it takes more fuel with ethanol. It is 25% less efficent than pure gas, and it will corrode fuel lines and ruin injectors.
As for why the E85... your government at work. If it was pure ethanol (ie: alcohol) it would then be subject to Alchol tax.
15% gas keeps the taxman away, and all the idiots that would drink it
For what its worth, I really never expect the current form of Ethanol to catch on or solve any problems. I also heard that it is more pollutive in combustion than regular gas.