Microsoft have released this nifty little bot for Windows Live Messenger which is also available at windowslivetranslator.com and also as an accelerator in Internet Explorer 8 beta 2.
You start by adding mtbot@hotmail.com to you contact list from there you can set up the bot to translate as you wish by entering “Tbot?” which brings up a list of available options to choose from.
Currently Tbot can translate between English and the following languages:
Arabic
Chinese Simplified
Chinese Traditional
Dutch
French
German
Italian
Japanese
Korean
Portuguese
Spanish
Russian (RUS->ENU only)
Chinese Simplified <-> Chinese Traditional
Once set up you can use Tbot in two different ways, either just have a one-on-one conversation with Tbot and it will reply with the translation in your selected language. It’s best to keep the sentence structure clear and simple not using slang. You can also invite Tbot to your conversation to translate your contacts replies.
Over the following months Microsoft plan on adding additional languages but apparently the English to Chinese Simplified & Chinese Traditional is a little sketchy at the moment, but maybe this will be sorted out in future updates.