This suffers the same limitation as jwkrahn (that initially had me fooled), in that:

1. it can only deal with strings up to twice the length of the input set;

   Whilst I gave 2 & 12 as an examples of M & N, I thought it was clear that other values were possible.

2. it will only generate a small fraction of the possible legal values;

   Even at length 12, it won't generate abbabbabbabb.