The general consensus is that the older your car's engine is, the more likely it is that Ethanol will cause damage. Ethanol is a corrosive agent to some metals, and will eat away at neoprene and silicone O-rings and seals. Most newer engines (1980s onward) have fuel systems that can handle the 10% Ethanol mix because their seals are primarily Teflon-based. Older engines may experience difficulties ranging from fuel problems to total engine failure.

On the Other: Frequency of Use

Ethanol also acts as a moisture absorber, and will actually draw the water out of the air and tank in your gas tank. Because of this, if you let your engine sit for a long period of time (Several weeks), a buildup of water and a separation of liquids will occur, leaving you with a layer of water on the bottom, ethanol in the middle, and the actual gasoline on top. This will cause rust and corrosion on your gas tank.

Bottom Line

Most gas stations nowadays sell fuel that is a mixture of gasoline and ethanol already, and there have been very few damaged automobiles directly linked to the ethanol. Smaller motors may suffer damage due to infrequency of use or the wear that ethanol creates on the fuel seals. Older cars, however--especially those prior to 1975--may be unable to efficiently process Ethanol fuel.

Source:

EVWorld.com: Possible effects of Ethanol in classic cars

PublicBroadcasting.net: Car Talk experts speak about Ethanol Damage

PublicBroadcasting.net: MSNBC Article: Mechanics see Ethanol Fuel damaging smaller engines