This is an incredibly complicated question because there are market distortions in all energy supplies--subsidies, taxes, political manipulation, etc. My general understanding is that the current U.S. process for making ethanol from corn is probably only slightly better from an environmental viewpoint than gasoline, due to the need for fertilizer and various diesel inputs (for tractors, trucks, irrigation pumps, etc.) that come from fossil fuel. Ethanol from sugar cane in Brazil is less expensive from the energy viewpoint, but faces tariff barriers in the U.S.
The huge mileage difference between the cars you mention almost certainly overwhelms any advantage E85 might have. It would be better if hybrids could run on E85, but in the meantime I think your most environmentally sound choices are the Prius or the Civic (or, best of all, a second-hand Insight).
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