Alcohol intoxication (here we mean ethanol) causes complex effects on the brain and inner ear.
The effect on the inner ear is primarily to cause density differences between the endolymph and cupula. Initially in alcohol intoxication, the cupula is lighter than the endolymph. Later on, ethanol is cleared from the blood and cupula, leaving it lighter than the endolymph. These small differences in density account for so-called Positional Alcohol Nystagmus, or PAN (Money et al, 1974). Note that there is also another PAN -- periodic altenating nystagmus.
PAN due to alcohol ingestion is more sensitive than body sway in detecting blood alcohol (Kubo et al, 1990). PAN does not last longer than 24 hours (Odvisk, 1975)
Alcohol of course also affects the brain, and causes intoxication and unsteadiness. Law enforcement officials often use the effect on the cerebellum -- gaze evoked nystagmus -- as a screening test (Booker, 2001; Goding et al, 1986). Alcohol impairs fixation suppression (Harder and Reker, 1995) and pursuit (Barnes, 1984)
Because alcohol affects both the ear and brain, it can create the appearence of inner ear and brain disturbance (Tianwu et al, 1995). There may be downbeating nystagmus for several weeks after heavy alcohol injection (Rosenberg, 1987). Some authors recommend testing for alcohol prior to assessing persons for ataxia (Scherer et al, 1983), when there is money at stake.