Today at CNN.com there is a story about what they call an 'air car' that gets 106 miles per gallon.
Here is a link; http://www.cnn.com/2008/TECH/08/08/air.car/index.html
Here is a quote from the article; "Above 35 mph, there is an external combustion system which is basically a heater that uses a little bit of gasoline or biofuel or ethanol or vegetable oil that will heat the air."
Internal combustion engines are about 20% efficient, external combustion engines are about 90% efficient. The problem with external combustion engines is that they only have one speed, full speed. Some solutions to this problem have been recently invented. One is the continuously variable transmission. Another is to have it power a generator to charge batteries and then use an electric motor. The problem with that is that generators, batteries, and electric motors are not highly efficient.
External combustion engines were highlighted on my web site many years ago under 'Sterling engines'. Another use would be to have hot springs or even volcano's power electric generators. Thus you could make essentially free sources of electricity. The most common example of an external combustion engine is a steam locomotive, remember them?