The main reason for the better gas mileage and more power is the chemical energy between ethanol and gas. Ethanol has about 80% of the chemical energy of gasoline, so using the same volume of ethanol vs gas will result in 80% less power, roughly.
Now the advantages of ethanol are very numerous, but I highly doubt this bike can fully take advantage of them. Ethanol burns much cooler than gas (lower chemical energy output) so therefore you can advance the timing drastically without getting and pre detonation due to cooler cylinder temps. These gains/advantages are mainly noticeable and used in boosted motors, turbo cars for instance. Not only can they raise the boost levels, so long as the mechanical components can withstand it, they can advance the timing to the extreme. The downside to this however, is that when running larger ethanol based fuels, read e85, the fuel economy goes to .... because you have to command ~20% more fueling in the tune to just make up the power by not running gasoline.
On a completely different matter, the lower octane rating fuels have higher chemical energy output, as they burn hotter, bigger explosion, they're more prone to pre detonation. So the basic rule of thumb is run the lowest octane rated gasoline you can without getting knock.