Just because the energy density is there does not mean that the engine can take advantage of it. ICE engines are all about timings and combustibility. If the timing computer is not configured to adjust for E10's alternate timing, this measure of poor efficiency is entirely possible.
That's what the octane rating is for. Ethanol even has a higher octane rating than gasoline. All modern (~'96 or later) engines have anti-knock sensors and can adjust timing. 89 octane gasoline vs 89 octane E10 will perform the same.
It just isn't possible to lose 42% from running E10. You won't even lose that much efficiency from running low octane fuel in an engine that requires high octane.
Are you getting E10 confused with E85? E85 is a whole different beast and will ruin a car not designed to run on it.
He's off by a magnitude. E10 has about 97% energy density as 100% gasoline (http://www.afdc.energy.gov/fuels/fuel_comparison_chart.pdf)
A 42% loss would be huge. A 30 MPG Toyota would get about 18-19 MPG.