Here is a little research from the Internet to answer my own question: Water is completely soluble in ethanol at all concentrations. Once ethanol absorbs enough water, it no longer stays blended with gasoline, and forms two liquid phases: a gasoline rich phase and a water/ethanol rich phase. The water/ethanol rich phase sinks to the bottom of the tank where it will go directly into the engine.
Ethanol can only be recovered from the water phase by re-distillation. Once the separation phase occurs, the ethonol can be removed from the gasoline in the same way that water is removed from gasoline. The colder the temperature, the more likely the ethanol blends were to separate. This explains why the separation phase is more likely to occur as an aircraft climbs. The higher you go, the colder and the more likely that water and alcohol will cause the separation to occur in ethanol-blends. Frank Nelson
