The government studies that were done on algae that determined it was not effective were done on open ponds. In that situation, the algae below about a centimeter from the surface don't get meaningful sunlight, which harms efficiency.
Algae systems that would actually work are closed systems -- actively circulating tubes or plastic bags hung like sheets out to dry on the clothesline, so that the sunlight impinging on a given area can be maximally absorbed by the algae, stagnation is prevented, and the pumping system can filter out mature algae for processing on a continuous basis. There are some test operations like this. One in west Texas uses the thin plastic bag method.
Open systems also tend to not remain exclusively algae for long -- they get contaminated with critters..bacteria, fungus, protists, plants, animals, you name it. A closed system is much easier to keep sterile and flush and reload if necessary.
My personal energy fantasy is to use solar thermal concentrators (which are IMO the most promising solar electrical generation tech, not photovoltaic), a la [url]http://www.stirlingenergy.com/[/url] . You don't just have to point your concentrators at Stirling generators though, you can point them at high temperature reactor vessels to support the production of SynGas (H2 + CO in a certain ratio depending on your goal). H2 can be produced thermally or by electrolysis, depending on what you can do most efficiently. Once you have SynGas, you feed it into a Fischer-Tropsch reactor, and you end up with an alkane mix of your preferred length (C4-C10 for gasoline, C12-C15 for kerosene, diesel in the middle of that, etc.). That's the process that I mentioned before is already producing fuel that flies some military aircraft.
During WWII, he axis powers were producing 124,000 barrels a day of liquid fuels with F-T using syngas that they produced by gasifying coal. You can replace coal with most any hydrocarbon, biomass, etc. Or you can produce syngas like I described.
It seems a bit hairy, and it's certainly not as cheap as just pulling it out of the ground, but it's carbon neutral, really will never run out, and requires absolutely nothing in terms of replacement of our vehicle fleet.
Some people who are doing algae are using waste water from cattle as the feed stock for the algae. They are turning around and feeding the algae (without the oil) back to the cattle. This is a nice system from an ecology point of view. I don't know what it is from a nutrition point of view since they are extracting the oil and feeding the carbs back to the cattle so they don't get the Fatty Acids, but they would get the "green stuff".
I think what is clear is that we have single sourced our energy, we will have to change soon to multiple sources for our fuel. We need to make good choices which balance the ecology, economic, and social factors (feeding the world) it isn't going to be easy.
Corn may be a terrible energy source (as well as unhealthy for the cows and the humans that eat it), but the problem is... the farmers in Iowa grow corn. Until there's a viable alternative for their livelihoods that suits the climate and infrastructure of America's farmland, I'm afraid few mainstream politicians are going to tell the truth about ethanol or embrace a more sensible alternative.
(I saw King Corn and what struck me was how they said that slaughtering grain-fed cows was humane because otherwise the cows would DIE from eating that much grain. Corn just kills their stomachs. It turned me off grain-fed cow forever.)