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Transforming variable-length to fixed keys

I posted this to sci.crypt recently but the response to it was rather
underwhelming, so I thought I'd repost it here to see if anyone has any
comments on it.  What it is is a scheme for transforming arbitrary user keys
(typically a long passphrase) into a fixed-length key for a particular
algorithm.  This has the following properties:
1. The user key 'userKey' is transformed into an algorithm-specific key 'key'
   using a number of 'iterations' of a hash algorithm 'hash()'.
2. The transformation is strongly serialized so that any form of attack
   involving parallelization or precomputation isn't possible.
3. The transformation is non-reversible, so that recovering the transformed key
   won't recover the original key.
4. The result of the transformation is algorithm-dependant, so that if an
   attacker recovers a transformed key for one algorithm they can't recover the
   transformed key (from the same user key) for another algorithm.
5. The transformation can be iterated as often as required to make
   password-guessing attacks difficult.
6. The transformation process is algorithm-independant and can use any type of
   hash algorithm and original and transformed key size.
The transformation algorithm (which was designed with the help of John Kelsey)
is as follows:
   key[] = { 0 };
   state = hash( algorithm, mode, parameters, userKey );
   for count = 1 to iterations
     for length = 1 to keyLength (in hash_output_size blocks)
       state = hash( state );
       key[ length ] = hash( state, userKey );
The state acts as an RNG which ensures that the key hashing is serialized.
The initial state depends on all encryption parameters, not just the user key.
If we hashed the user key directly and then used it for a number of algorithms
then someone who could recover the transformed key for one algorithm could
compromise it if used for other algorithms (for example recovering a DES key
would also recover half an IDEA key).  Hashing all algorithm-related parameters
means that a successful attack one an algorithm, mode, or configuration won't
allow the key for any other algorithm, mode, or configuration to be recovered.
The code which implements the iterated hashing is:
  /* Hash the variable-length input to a fixed-length output */
  memset( key, 0, keyLength );
  for( count = 0; count < iterations; count++ )
    for( keyIndex = 0; keyIndex < keyLength; keyIndex += hashOutputSize )
      /* state = hash( state ); key[ n ] = hash( state, userKey ) */
      hash( state, state,   hashOutputSize, HASH_ALL );
      hash( NULL,  state,   hashOutputSize, HASH_START );
      hash( temp,  userKey, userKeyLength,  HASH_END );
             |         |          |
           output    input   input size
      /* Copy as much of the hashed data as required to the output */
      length = ( keyLength - keyIndex ) % hashOutputSize;
      for( i = 0; i < length; i++ )
        key[ i ] ^= temp[ i ];