I understand the issue with truncation causing 32-character password to be pared down to 8-characters effectively shrinking the entropy to something easily guessable that is a serious problem. Base64 encoding is better than Hex but still can be truncated.
I do have my reservations about PasswordMaker or the simplistic md5sum method I described but I am also equally concerned about fully unique password stores in a file that has a single master password. That file is golden, and if you lose it or have it compromised even if someone doesn't know your master password they effectively defeated that security system because you can't be sure if they have or will compromise the encrypted file. File management also becomes an issue if you have to access those accounts from a mobile phone, work laptop, on vacation, in an emergency where you don't have access to your own computer or USB stick, etc.
I also agree that all the options in PasswordMaker doesn't really make much sense if your master password is good already, they just try to add complexity to the hashing algorithm which is unnecessary since the hashing function has a good entropy already. These settings are just to create security by obscurity for any would-be holders of the master password but like you said the total permutations of choices is really limited and not so useful. I think the character set alpha-num+symbols, password length, and hashing function are more than enough.
My plan is to use different master passwords for different types of sites and also different security level desired so that throw-away forum logins wouldn't share game account password wouldn't share e-mail account passwords, and so on and so on. If one password got compromised only that site's account would be compromised and no other. If one master password got compromised then only that group of sites would be compromised.
Multiple login attempts to online sites usually get met with verification schemes, time-outs, lock-outs slowing down the password guessing process. However, brute force breaking of a password file can happen without limitation on farms of botted computers.
Both solutions offer the same thing, unique passwords per site so that insiders cannot use your password to login to other sites and accounts. One is storage-less one is storage-based.
The truly unique password stored in the file are stronger since they are truly random so at first this sounds like a great idea until the reality of management of the password file surfaces and you end up with all your eggs in one basket, that can be copied.
The algorithmically based passwords are not nearly as strong since they can be reversed if the master password or passwords are known but you don't have to manage any files, except maybe the preference file showing the settings you used for special sites that don't accept certain characters or lengths that you normally use.
Password management is a difficult task, especially when we have to manage dozens if not hundreds of accounts by now all using their own authentication system instead of using OpenID or Google APIs or Microsoft .Net.
Right now, I like the idea of storage-less unique password management better than trying to guard a password file in the world of Windows machines and vulnerabilities.