This seems straight out of a sci fi film (and in fact is similar to Douglas Adams' Babel fish). Skype has just released a demo video of its live audio translation in action.
I'd love to play with this (translation - try to break it), and I'm sure that bits where it didn't work have been edited out, but how brilliant the potential is, especially for a nation of terrible language students.
Earlier - Word Lens - written text translated, from 2010 (now owned by Google)
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