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I do not believe that MTBE and Ethanol are significant octane-raisers, particularly not in the relatively small amounts that are used in most gasoline. Tetra-ethyl lead very much is, however.
MTBE was added as an "oxygenate", as is Ethanol. Ethanol, at least, has less energy content than gasoline does, which isn't so good for fuel economy. They are supposed to help the fuel burn more thoroughly/more cleanly, in particular in older vehicles without closed-loop (O2 sensor equipped) fuel delivery systems. From anecdotal evidence, what they actually do is drop the fuel economy of the more modern cars by anywhere from 2% (AAA figure) to 10% (some Hypermiler figures).
It is likely that a car that was specifically designed to run on E85 or "pure" Ethanol (you can't get completely pure as it will suck water out of the air!) can be more efficient in at least one way than a gasoline motor, because Ethanol has a higher knock resistance than gasoline. So the engine could be built with more thermal efficiency (higher compression ratio, or a tiny engine with a good-sized turbo, or what have you). That may very well be enough to overcome its lower energy content, but I'm not sure.
I am of the opinion that its main purpose as a gasoline additive (in small amounts) is to transfer $$ from our pockets to those of the Ethanol producers.
-soD
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