Phase separation, ie. Watery fuel

It seems to me (I have never used E10) that the likely culprit is length of time between flights.

You did not mention when the last flight had taken place.

or

If you had refueled before the incident flight.

or

When you conducted the pre-flight fuel test (before/after refueling).

or

When doing the test you made sure it was clean uncontaminated (with water, an easy mistake).

If you want stored fuel to still be fresh when decanted: It must be in an airtight container. Minimum fuel level 75%. Preferably no older than about 6 months.

Speculation:

Sure, ethanol is hydroscopic and atmospheric moisture will contribute to water contamination of  E10 fuel that is open to air (a fuel tank) however I think that, fuel testing before refueling (retesting until clean fuel is reached) then refueling with fresh fuel, allow a few minutes to settle, retest for contamination, before flight, will likely reduce fuel contamination concerns, to almost zero.

Test your fuel preflight; in a glass jar ( tall cylinder works best) add small amount water and mark that level on container then add equal amount of fuel. Cap and shake vigorously for about 10-15 secs. Let sit for about 15 mins. When the fuel/water separates the water should still be at the water line.  If above this line then that’s the extra water in your fuel. You can also buy kits for testing. 
Keep in mind that ethanol can break down seals and gaskets over time. Always follow your aircraft fuel recommendations 

Did you watch the video?  E10 is HIGHLY hydroscopic and absorbs water almost immediately with agitation, even with fresh gas added. I fly my plane every week and it had over 1/2 tank of fresh gas. Fuel sample before flight was perfectly clear.  My point is be careful when running e10.  I'm sure this is NOT an isolated event and in my opinion should be a major concern for rotax owners. 

Joseph Porrazzo wrote:

Did you watch the video?  E10 is HIGHLY hydroscopic and absorbs water almost immediately with agitation, even with fresh gas added. I fly my plane every week and it had over 1/2 tank of fresh gas. Fuel sample before flight was perfectly clear.  My point is be careful when running e10.  I'm sure this is NOT an isolated event and in my opinion should be a major concern for rotax owners. 

Yes! I watched the video - the sceptic that I am noted: - Did not use petrol for the demonstration  - Has a vested interest in providing a service/good related to the negative/alarming outcomes of demonstration.

I agree with being careful - it seemed to me that your fuel problem may have had contributing factors (not stated by you/ as listed by me).

"Fuel sample before flight was perfectly clear. " Taking this statement literally - "clear" could indicate the sample was all water.

There is no doubt that using E10 has its challenges. I would hope, that careful management (as listed earlier) would markedly reduce these concerns/risks (flying is all about managing risk). 

PS - I have never knowingly used E10 in any engine

As a Hazardous Materials Tech on the Fire Dept. with chemistry for the last 30 years there is way too much misinformation about E10 up to E23 (other places in the world) going around. People worry way too much and are misinformed as to how water and ethanol fuel perform in the engine.Many would be shocked and relieved to know the real truth. Do your due diligence and research and don't believe everything you hear from others. Read the science. E10 is nothing compared to other places in the world. Plus E10 and E15 is rarely up to a true E10. Many times it's only up to a 6 or 7 when tested. Most places say up to that amount. For ten years we tested it here where I live and it was only that 6%-7%. We only saw 8% a couple of times and never 9% - 10%.. There are tons of science based researched articles out there so it's easy to find.

Plus some water absorption can be beneficial because it will just pass through the engine and not separate and settle out like it does in 100LL.

Chemistry 101.

A gallon of E10 (real 10%) can hold 3.8 tablespoons of water before phase separation.

• As an example, at 60F degrees, water can be absorbed by a blend of 90% gasoline and 10% ethanol up to a content of 0.5 volume percent before it will phase separate. This means that approximately 3.8 teaspoons of water can be dissolved per gallon of the fuel before the water will begin to phase separate. 

  1/2 cup  equals

  8 tablespoons  equals

  4 fluid ounces

   If you have a 20 gallon tank times 3.8 tablespoons that's 76 tablespoons. 8 tablespoons is 4 ounces. Basic science.
• Now lets look at fuel and our fuel tanks. Fuel starts to off gas and will burn  at approximately -45F. If your outside temp is 60F then the fuel is off gassing out your tiny vent hole through the gas cap or out another 1/4" hole. So here's the biggest myth: Ethanol fuel DOES NOT suck water out of the air. Where this myth started I have no idea. Ethanol fuel is hydroscopic, but it doesn't suck water from the air.
• Leaving your plane sit in the rain could be cause for concern under certain circumstances or it could happen if you poured it in or you had some of the worst fuel supply around. I have demonstrated this by pouring 6 oz. of water directly into a 17 fuel tank and still run the engine because the water is still suspended at this point. You're right you really don't want the water in the fuel, but overly worrying about a minuscule of water that may be in the fuel isn't an issue. Also I agree that higher altitudes affect that phase separation and make it happen sooner, but I doubt many have fully saturated fuel and flying 8K - 12K altitude. If you fly really high then using 100LL would be better.
• That said if you ever saw water come out the fuel test port with ethanol then it's time to drain the fuel and put in fresh. 

MYTH: Ethanol-blended fuels are bad and should be avoided.

TRUTH: Ethanol blended fuels (E10) are common throughout much of the United States. After the transition period from non-ethanol fuel, E10 may actually be a superior marine fuel, as it tends to keep low levels of water moving through the fuel system, keeping the system “dry”. For over a decade, marine engines have been engineered to handle E10 gasoline.