Can't think on a real word example, but abc would match bcd in the above algo, as both permute to bc, but they are distance 2. So, any case where one letter is deleted and another is added at a different position.

Boat and Oats is a real world example with Levenshtein distance 2 that would pass through the algo

Yeah, that's the crux -- two different real words storing the same variant but having omitted different letters.

Haha, I knew the answer was going to be obvious, and it was so obviously obvious. Thanks for answering. :)