What about butanol synthesis from ethanol feedstock. If there is a good catalyst for it I'd think it would not add to the overall cost. The wike says it can be made from ethanol via electrolysis http://en.wikipedia.org/wiki/Butanol#Production But I suspect there is a catalytic route. I found one here http://www.sangi-co.com/e/index.html Butanol Synthesis from Ethanol Using a Hydroxyapatite Catalyst Everything I've read points to butanol being almost the perfect fuel as far as pollution and energy density goes.
I don't think you would want to synthesize it from ethanol. I think you would be deeply in the hole on the energy balance. Given that ethanol is already marginal, you are going to end up with a butanol product that definitely required more energy input than the final product contains. Far better to synthesize it directly.

Well I think you just answered the question about using ethanol for anything but high value needs. If its too expensive to use as a chemical feedstock then its proabably not worthwhile to burn it for general transportation.

If people don't feel its valuable as a feedstock then why the hell use it for transportation ?

Oil/Natural gass feedstocks don't suffer these problems. GTL for example is viable even CTL's.  

I think we do need to find a renewable reduced carbon source for future transportation needs mainly the airline industry and critical off grid transportation and for chemical feedstocks.

Ethanol does not solve this problem.