[bruce343434]

A letter-by-letter markov chain would lead to similar unconvincing results. As you said, vocal groups matter much more than single letters. If you know anything about korean, they actually group letters into characters that way. If one could build such a markov chain for English it would be very convincing I think.

[mrbukkake]

You're right, I forgot that markov chains are memoryless

[dminor]

I used a letter by letter Markov chain for this: http://password.supply/

The output is definitely not convincing as actual words (but reasonable for somewhat more memorable passwords).