I know that once you have sugars, you can ferment, distill, and dehydrate to create 95+% ethanol. I've also read about cellulosic ethanol, with the new step there being the breakdown of the cellulose into simpler sugars. Is there a relatively cheap way to do that yet, or it still only in expensive research labs?
A method used to break down cellulose into sugars is hydrolysis :
You could use enzymes to hydrolyze the cellulose to produce glucose, but enzymes cost a lot and as you are looking for a cheap way, using enzymes is not an option. A second method is to use an acid (e.g. sulfuric acid) to produce the glucose (just google "cellulose acid hydrolysis" and you'll find some useful links)