> I use these year around. In my '04 4.4, the settings were perfect. #2 gave me what I wanted in the back cushion and the bottom cushion. Now in order to get the heat I want in the back cushion, I must use #3 which makes the bottom cushion too hot. Service rep says put towel in seat to absorb the extra heat. Right, that what's I want to do.
I noticed the manual shows models that allow the owner to make this adjustment. Obviously I don't have that feature,

You should. The Owner's Manual will tell you how to change the distribution of heat between the seat back and the seat cushion. Read the Manual. Page 50 of the 2008 USA Owner's Manual under "Temperature Distribution."

> I found it curious that the manual says using heated seats affected mpg not unlike using the a/c.

(1) The seats take eletricity to heat, (2) the alternator takes power from the engine to make electricity, and (3) the more electricity the alternator makes, the more power it takes from the engine, which reduces MPG. But this effect is much, much smaller than the A/C power drain.

> Is 10% ethanol okay or best to avoid if I keep this long term?

10% ethanol is OK. In some metro areas, it'd all you can get.