As mentioned Brazil's ethanol industry seems to be pretty successful based on what I've read. Corn ethanol definitely isn't the way to go, though. There are much more efficient biomasses for ethanol, such as switchgrass.
Also, although ethanol has a lower energy density than gasoline, it has certain properties that allow it to be burned more efficiently than gasoline. For example, it has a much higher octane (IIRC one of its current uses in gasoline is as an octane increaser), allowing for it to be run at a considerably higher compression ratio than normal gas. In a study (done by the EPA, I believe) an engine *optimized* for ethanol (as opposed to current E85 engines, which are optimized for gas but have a few minor tweaks so that they work w/ethanol) was able to achieve significantly better fuel economy than a gas engine, it was up in the 40-45MPG range I believe.
So yeah, ethanol and biodiesel may have some hurtles to clear before becoming a replacement for gasoline, but considering our currently available technologies and infrastructure, I think they are our best alternatives.