Will the A3 run on E85 gas without any adverse side-effects? How about 100 octane gas?

 

100 Octane is ok. I wouldn't try E85.
Here might be a reason for mpg drop.
Your DV valve my have froze and then ripped. Losing boost preasure, loosing power thats not truly unnoticed but could effect your MPG's. I would take it in and just have them check it just incase. It is under warranty and they my find the problem. Since it got cold here I got an extra 2 mpg.

 

Cheaper burns cleaner, but burns faster. in a nut shell

 

+1 on getting the DV checked. Also, does anyone know if Audi corrected the PCV problem on the newer models?

Regarding E85, I don't think the A3 would handle it properly unmodified. The A3's ecu is very good at adjusting fuel flow and timing based on what gas you are running, but since E85 has less energy potential per gallon than gasoline, it would require more of it to make the same power. I don't know if the A3's fuel pump or injectors are up to the task (fuel cut with chip tune, anyone?). That being said, if one of the tuning companies made a tune specifically for E85 and coupled it with high flow injectors and fuel pump, this car could make some crazy power! The higher resistance to detonation would allow you to run unheard of boost (higher than race gas). It's not unfeasible, most chip tunes now allow you to switch between multiple 'programs,' or fuel maps. I think the primary limitation would be how much boost the 2.0T can hold.