Don't see how it could. A water seperator is required in diesel applications because water in the fuel will ruin the injectors and possibly the pump. IE mega $$$$ to repair.

Gasoline engines won't run with water in the fuel, but I don't think it will hurt them much either.

Ethanol absorbs water (a big part of fuel drying chemcials) so I see no way that this would work with ethanol fuels.