I think hydrogen is the future. Ethanol is just a pipe dream.
I consider myself a good chemist, and yes, the only byproduct of hydrogen combustion is water vapor. But these systems are introducing hydrogen and oxygen into your intake system. So they will be reacting with air (78% nitrogen, 21% oxygen and 1% other gases). A good analogy is if you hold a cigarette lighter next to a camp fire, the fire burns hotter. The fire doesn't actually burn hotter (i.e. produce more energy) the energy produced by the lighter (i.e. heat) is added to the energy (heat) of the fire.
A closed system that ran on pure oxygen would be great, but I can't think of any way to collect air, purify it, compress it (compressed gases have a cooling effect when decompressed) in the quantities needed to aspirate an internal combustion engine.
Hydrogen also burns hotter than any other gas, (actylene C2H2 is second)increasing engine temperatures, which will lower mpg's, and could also cause damage.
You have to take into account the energy required to separate the hydrogen from the oxygen
On the surface this looks like a good system, but one of the fundament laws of physics is that you can never achieve 100% efficiency, there will always be some net loss. These systems are just snake oil wearing a pseudoscience disguise.
I'd like to be one of the first to jump on the hydrogen bandwagon. But I think adding hydrogen to a gasonline powered engine is asking for trouble, without some extra cooling. A true hydrogen system is what is needed.
Check out this website, its the best I've found:
http://www.switch2hydrogen.com/h2.htm
They address they issue of hydrogen storage, hydrogen separation from water.