Soundguy,
What you say is true, and when the correct mixture is achieved, it can be burned in a gas engine.
Alcohol will absorb a certain amount of water, and is also a solvent, which will mix with hydraulic fluid. In this situation, we are just adding solvents to whatever is there. I don't know about your tractor, but my Power-Trac holds 20 gal of motor oil which is used as the hydraulic fluid. I don't think it takes to much to emulsify any water in the system and render it unsafe or unreliable, and will damage things if left there for any length of time. For one thing, the viscosity probably changes, the oxidation of the fluid will increase, and performance will diminish. I was even thinking of using of a non-detergent single grade motor oil in my system because the water will, or should not mix, but settle to the bottom, which can be drained . I live in Florida , and we don't have severe cold like our northmen friends. Multi-grade is used simply to cover the limits of the operating range of the equipment. I am not a chemical engineer either, but I think it would take one to figure out what is acceptable in terms of water in hydraulic fluid. If it's looks milky, I would say to change it as soon as possible.