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Well actually no. The problem is it doesn't tend to separate. Water and ethanol are mutually soluble in all mixtures. So the water is just taken up by the EtOH and goes merrily along with it. Hydrocarbons do not mix with water, which can be separated from the stream by a simple sump, a low place in the pipe, whatever. (I'm not intimate with pipeline technology but do have a bit of lab experience)
As for (2), all that wet ethanol tends to rust things. That, and even anhydrous ethanol is a polar solvent, which has more of a tendency to remove lubricants and coatings or soften them to where they no longer stay in place.
You have to make all your pipelines and equipment out of different materials than you do for hydrocarbons. Since it's kinda expensive to replace thousands of miles of pipe, they'll just truck it. There will be this interval of time while TPTB come to their senses, and they can truck the ethanol for that long. Or TPTB won't come to their senses, and the whole system will collapse. In which case they can also stop trucking the ethanol.
OTOH, I believe synthetic- or bio-diesel, can go through existing pipes without much trouble.