There was an article by Csaba Csere of C&D about an ethanol-boosted engine that is being developed by some folks at MIT (I think).

The idea is to inject ethanol (or E85) into combustion chamber as a means of cooling the intake air/fuel mixture and preventing detonation, as well as improving emissions.

This would allow the engine to have both: high compression ratio (12+:1) AND high boost (20+ psi). This means that the same output (200-300hp) of regular cars could be achieved by engine displacement of ~60% of current engines of similar power. This would mean that 1.8L EBS engine is about equivalent to a 3.0L conventional gas engine.

This system, running on gas and ethanol has an efficiency comparable to that of a diesel (provided that you account for diesel fuel's higher density and energy content). The fuel efficiency difference between a regular gas engine car would be ~25-30%, with the same engine performance.

The savings come from the fact that most cars don't use their maximum power in most situations (especially cruising on the freeway). In these circumstances, the smaller engine has lower pumping losses and operates without boost.

While this would require two tanks and some discomfort of separate fillups, ethanol tank is estimated to require a refill every 1 to 3 months.
Moreover, the designers estimate the cost of this system over a regular gas engine to be ~$1000. Diesels are more expensive, both in terms of manufacturing/tooling for car makers and because they have emission issues to worry about. This system solves both of those problems.

It currently is beginning to undergo testing and is expected to debut some time after 2010, if everything goes well.
We still need gas for it, though, so it is not an end-all solution.