There are more dynamics at work in a piston engine than the first law. For example, if the ethanol enables the engine to burn the fuel mixture more completely than it does the straight gasoline, you could conceivably get more energy from the ethanol mixture. Not that the gasoline has less BTUs in it, of course, but that you just aren't harvesting all of them inside the cylinder where they can do useful work. We know there are unburned hydrocarbons left over in a straight-gas engine, because something is left to light off the catalytic converter.
Doesn't pass the smell test. Ethanol doesn't burn completely in an ICE either, plus I've never read that this is happening. Do you have a reference?
I agree. The ethanol allows the fuel to vaporize more completely getting a more homogenous air/fuel mix. This mix burns more completely. Results would probably vary depending on what additives are in the gasoline.