It has absolutely nothing to do with the octane rating.
When I was growing up in Michigan, it was SOP to add alcohol at each fill up in the form of what was commonly referred to as "dry gas" or "gas line antifreeze". The general idea being that any water condensed in the fuel tank would be absorbed and held in solution by the alcohol and combusted per usual.
My understanding today is that the ethanol present is gasoline can hold moisture just like "dry gas", and that presence of absorbed water in some instances may not play well with the metallurgy of certain components. More ethanol could potentially carry more water. There may be metallurgy compatibility with ethanol itself in some instances, but I can't really speak to it.
E85 has only recently become available in my town, and haven't really read up on it, so I may be full of shit. That's how I currently understand it, though.