I have had E10 phase separate before in the tank, and for reasons I'm still not entirely clear on.
Once phase separation happens, all bets are off on octane rating. Since ethanol is cheap, plentiful, and in and of itself has a relatively high octane rating, it serves as one of the major octane boosters in E10 formulas.
Once enough water is present to cause phase separation, the partition coefficient for ethanol is so strongly in favor of the water that nearly all of it will be extracted from the gasoline. That basically makes the left over gasoline junk as fuel(although I disposed of what I pumped out by doling it out in half-gallon amounts at a time in full tanks of gas in my modern cars).