Ethanol does have a lower density than gasoline. Hydrocarbons have the highest density of all the fuels known.
I would not recommend going immediately to E85. I think the main reason that the 5% and eventually the 10% ethanol in the gasoline is proposed is to have some environmental benefits. Certainly with a gas tank full of ethanol, you will go a lesser distance than a gas tank full of gasoline. So I think an increasing movement towards 5% and then 10% makes more sense to me, because it is built upon the existing hydrocarbon industry, which has served the country very well for over a hundred years. We just have to be moving progressively. And cellulosic ethanol will be transformed perhaps into bio-hydrocarbons as a third generation, so everything will be the same type of material pool within 20 years, or 10 years, or 15 years.
Moving prudently towards 5% and 10%, in my opinion, is the way to go.