Google Wave used to have a realtime language translation robot named Rosy Etta. Unfortunately it isn't currently available, so I had to write my own. I named my translation bot Aunt Rosie after my aunt and as a tribute to the original Rosy.
If you include a special keyword, Aunt Rosie will reply to your message with a translation in the language you specified. Watch the video for a demonstration.
To get started, you should add firstname.lastname@example.org to your contacts. Now invite her to a Wave.
To begin translation, type "/translate:xx" in your blip. The XX is an ISO 639-1 code which specifies the target language. Chinese is the exception. Use "zh-CN" for simplified Chinese and "zh-TW" for traditional. Note: Aunt Rosie is in beta and still has some bugs. As such, you need to add a space and a newline after the language target. Rosie should appear as soon as you you type in this keyword. If she doesn't, then you might be doing something wrong.
Rosie automatically detects the language you are writing. However, this means you'll need to type enough text for her to recognize the language. Usually it takes 5-6 words before she starts translation. If you are using short words or proper nouns, it might take even longer. Try not to put too many proper nouns in one sentence or she'll get confused.
Aunt Rosie uses Google's machine translation software as her backend. She speaks all the languages Google supports. She is written in Java and runs on Google's App Engine.
Update 2009-10-13: I just finished making Aunt Rosie a lot easier to use. Instead of having to type special keywords and remember two letter codes, Aunt Rosie will automatically insert a language drop down into your blip when you've typed enough for her to recognize your language. Select the language you'd like to translate to and she'll reply with the translation. Easy as pie.
Update 2009-10-23: Occasionally the bot stops working due to a bug in Google Wave. I've mirrored the bot at email@example.com, so switch to webmaster if Aunt Rosie is broken. You can track bug 278 on Google Wave's developer site
Update 2010-07-19: It took a long time to get work approval and then I was lazy uploading it somewhere (and in the meantime I switched to Git), but the source code is finally available on GitHub.