The O2 sensor doesnt know that you've got ethanol in it, but it will detect the leaner mixture and the ECU should compensate somewhat.
Ethanol has a lower calorific value than petrol, so basically the SAFF stuff (or any other ethanol mixed fuel) has less 'bang' or energy for the same amount of petrol. Thats why your economy is suffering, and is one of the major downfalls of ethanol mixed fuels. Usually the economy drop is roughly 2-3% in most cars for a 10% blend. If you're suffering much more than that, then something is wrong...
So IMO the bottom line is that you're not really saving money on ethanol fuels, unless its able to at least compensate on the pump price with respect to the fuel economy loss. That means roughly 5c/L cheaper. I'd have no problems using it in your average 10 year old car I guess, but I dont see the point using it in our cars.