I have implemented (with a group of two other people) a slightly fancier version of something like this at school, for an exercise at DSP implementation course.

I have implemented (with a group of two other people) a slightly fancier version of something like this at school, for an exercise at DSP implementation course. The basic principle was really the same with the circular buffer and a filter, the combo of which can be understood as a long IIR filter. The fancier parts included tunable harmonic bandpass filter (in place of OP's two sample average), and a fractional delay filter for fine-tuning. By changing the parameters on the bandpass filter it could be made to sound anything from a plucked string to a church bell (minus the reverb since we didn't have that). We were quite surprised how good it sounded. Unfortunately I seem to have misplaced all the materials related to that course. The hardware we implemented it for was some exotic audio DSP, but we had a matlab model that could produce output samples. If only I could find it.. =/