"Race gas" is commonly understood to refer to octane number. E85 is 94-96 octane, according to wikipedia, which enables you to run higher compression or higher boost.
The fact that it has lower energy density just means you burn more of it, so your tank runs out faster. It has nothing to do with the power you can get out of the engine.
If E85 has ~40% less energy in it per volume/weight, then you'd need to be pushing ~40% MORE fuel in the same timeframe to break even on power, right? So you'd need the octane jump from 91/93 to to 94-96 to allow you to run enough extra boost to burn 40% more fuel per cycle. Assuming your turbo/supercharger can deliver 40% more pressure without a big drop in efficiency. And you need your fuel injectors and fuel pump to be able to push 40% more than previous peak numbers. Just to break even. Right? I don't see a 1-5 octane jump buying you enough extra boost to even break even... Maybe with aftermarket turbos, FP, injectors, etc...?
I've done a lot of work with turbo charged cars, but I'm not an expert, so i could be wrong here... I'd rather just buy real race gas or mix toluene than mess with E85...
You don't add 40% more fuel/air mixture, you make the mixture 40% richer. Fuel is such a small part of the fuel/air mixture that 40% more fuel volume has virtually no effect on the compression stroke.
Timing out the injectors is an issue if they are marginally sized, and the ECU can throw a fit because it thinks the injector timing can't possibly be as off as the lambda sensor tells it.
On my old VW Passat, you could program an offset into the ECU to account for the latter problem. I test-ran it on up to about E85 without any other changes, and got noticeably less knock retard until the injector time saturated somewhere around E60.
It generally requires an upgrade to the fuel system, yes. There's been a lot of discussion of this in the tuner community, but the very short version is that it works and works well if making power is your goal.
tl;dr - E85 does have lower energy per unit of volume than pump gas, but the significantly higher octane rating and evaporative cooling effect of ethanol mean higher boost and compression levels, more than making up for the difference.
E85 tunes are common (and the numbers amazing) on various turbo car forms - cars like the Evo generally have a rich aftermarket that can handle such a setup. Fuel economy is the last thing on their mind....
The fact that it has lower energy density just means you burn more of it, so your tank runs out faster. It has nothing to do with the power you can get out of the engine.