Even after one round, repeating that knocks down your plaintext-space to 256 bit strings (or however long the output is of the hash function that you are using). Tom/Colin, is this actually a problem?
That's the case for every hash function. If it's a good hash function, the outputs will be evenly distributed across the entire 256 bit space, which comes out to 2^256 possible outputs. I don't think this is a problem; bcrypt has a much smaller output space.