Yes, that's why i said you can then add more loops by using a hash for every letter in the password, and even more loops if needed.
You would also have to know the algoritmh used by the RGN.
The password "password" would give 1 hash value, then every letter of the pw (8 in this case) would give 8 more hash value. For each hash we xor the data using the above algoritmh by initializing the rgn with the said hash value. Then the entire process could be repeated as many time as wanted.
I beleive in this case it would be pretty darn hard to decrypt.
And yes the 8 bit issue is something i plan to resolve when i have the time.