Before the days of slick 50 and tuneup in a bottle, they used to sell
water injection kits. You would hook it up to the intake manifold,
and then you got twice the fuel mileage and 3 times the engine longevity.
I remember a gas station owner where I used to live who got arrested
one day, because (guess what?) he was diluting the gasoline and diesel
he was selling with water. They got him for tax fraud, because at
$4 per gallon (Europe) it was a handy profit for him.
I would think the water would separate from the gas, and just kind of
sit at the bottom of the tank. That's the reason in Europe they always
rust proof the lower third of heating oil tanks, because the water sits
at the bottom.
If there is enough alcohol in the fuel, like 10%, the fuel seller probably
 could add enough water to increase the profit margin significantly, and
 people wouldn't even notice since the water would be absorbed and
mixed with the alcohol in the fuel.
The problem starts when someone gets too greedy, and adds more
water than the alcohol can absorb, and the water starts to separate
at the bottom of your tank, and the fuel pump sucks in water.
That's when the car stops running.
Harald
'90 westy

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