It's not really a password manager--there's no shared secrets. The site identifies you by a public key. For authentication, it gives you a nonce, and you sign it with the corresponding private key. All the secrets are kept on your device.

I've wondered about the "something I know" dimension as well. Perhaps a passphrase could be used (it already is used to secure the master key). It'd still be a major improvement, as only your local device would need it, and you wouldn't have to have a separate password for each site.