Neither internal combustion nor external combustion (steam) engines will ever be the final answer to power requirements, there are just to many negatives associated with the combustion aspect. However, at this point in time, there are few readily available practical alternatives. Electricity generated by nuclear plants has its own significant negative side. Wind generated electricity is being fought tooth and nail by environmentalists because it may be hazardous to birds, there are years of litigation ahead. Fuel Cell technology is years away from being safely and reliably usable in the massive quantities needed. Hydrogen as a fuel is extremely dangerous, hydrogen burns rapidly at extreme temperatures and almost invisibly (remember the Hindenberg).
Current trends toward Hybrids, gasoline/electric, leaves some unanswered questions: how long will the battery packs last and what will you do with all the used packs (old batteries are a serious environmental problem).

I am sure that in time the problem will be solved, in the interim we need to move to cleaner burning fuels that do not depend on a resource that is limited in supply and requires major environmental disruption to obtain.

While ethanol is seen as a replacement for gasoline it isn't the best fuel choice internal combustion engines, it is nearly an energy deficient fuel source (it takes almost as much energy to produce ethanol as can be recoverd from using it as a fuel) and most existing engines will require modification to burn it as fuel.
Diesel has always been a better choice of fuel for internal combustion engines: it is easier to refine, does not give off as many polluting waste products, contains 17% more energy per unit volume, and is safer (less flamable).
Now consider Bio Diesel: cleaner burning than Petro, does not require major powerplant mods to use as a fuel like ethanol, made from a renewable non polluting resource, and the kicker it frees us from dependancy on foriegn not necessarily friendly governments.

I believe we will see a gradual movement to diesel driven vehicles. Mercedes (Daimler) seems to be leading the way the way presently but I expect to see others jump on the bandwagon if they are successful.