Is there a perpetual 2-factor-authentication scheme that allows temporary password generation?
If you use asymmetric cryptography you can make it work. The trusted device stores a private key and salt the user will type his password and it will get hashed with salt and get encrypted/signed and the result sent to server which has public key and the salted hashed password. The main problem is the trusted device now sends something much larger then the common short tokens used today. Also public key crypto is more computationally expensive, we know how to make the server side cheap but not both sides.
A server breach doesn't expose the private key, a trusted device breach doesn't expose the password and a loss of password doesn't expose the private key.