Reminds me of an algorithm we implemented in a programming project over the spring semester. It could take in two files, and based on what words were used and how frequent they appeared, it would give an approximation on the likelihood that the authors were the same. Used more often than not to find plagiarized texts.
You could do exactly that using this algorithm. I think the best way might be to read a file into a binary variable, and then instead of passing $mid(word, %i, 1) to $levenshteinequal() you would loop through with $bfind() and pass the words.
Even in its current state it could compare the text of two files (assuming they were within the line length limit), although it would be comparing the characters rather than the words.
Yeah. Some practical usage scenarios could be phishing detection or fuzzy string searching. For example: $levenshtein(nickserv, nikserv) which returns 1, or $levenshtein(runescaepee, runescape) which returns 2. I did some work on a bk-tree lookup [ http://nullwords.wordpress.com/2013/03/13/the-bk-tree-a-data-structure-for-spell-checking/ ] snippet for fuzzy searching which uses $levenshtein(), but it has a few issues and I haven't taken the time to sort them out.