Carl Zimmer has a nice piece in Yale Enivronment360 on continued efforts to build bugs that produce fuel, "The High-Tech Search For A Cleaner Biofuel Alternative". The article extensively quotes Steve Aldrich, President of Bio-era, on the trade-offs of using sugar cane as a source material.
Craig Venter makes an appearance arguing that the best long-term bet is to build photosynthetic bugs that use atomspheric CO2 to directly produce fuel. Maybe. This would require containment facilities for culturing engineered bugs, where those facilities also must capture sunlight and CO2 to feed the bugs. The costs for this infrastructure are not insignificant, and this is exactly what is presently standing in the way of large scale algal biodiesel production.
Here is the question I keep asking in these circles: why not just grow naturally occurring algae, which can be grown at extremely high yield in a wide variety of conditions, as food for bugs hacked to eat cellulose? If there is no algae to be had, just throw in another source of cellulose or other biomass. There would be minimal concern over growing modified organisms that might escape into the wild. The processing of biomass into fuel under would also be under conditions that are easier to optimize and control.
I'm not suggesting this is the only answer, but rather that it appears to balance 1) the costs of infrastructure, 2) concerns over enviromental release of genetically modified organisms, and 3) provide an efficient processing infrastructure that could use a wide variety of feedstocks.