From the official press release: 

TransFire XP is the first Instant Messaging App for iPhone with real-time translated chat. 

Say for example, your Argentinian cousin, Carlos, speaks only Spanish. With Transfire XP, you can now chat with each other in real-time, without any language barrier. Send a message wishing Carlos a "Happy Birthday!", and he will read "Feliz Cumpleaños!" on his phone. Carlos then responds, "Gracias," and you read, "Thank you."

TNT Creations announced today the release of their iPhone application, Transfire XP, free for a limited time. 

Transfire XP brings the first chat and instant-messaging app with real-time, translated text. The application features a user-friendly interface, fast message delivery, and supports over 50 languages.

Transfire XP finds contacts on your local phone or device, and supports contacts from Gchat and Yahoo Messenger. Upcoming support for chat on Facebook, ICQ, Baidu is coming next.

The translation is made possible by integrating Google Translate. 

Transfire XP is free for a limited time.

Find out more about it: 

Available in the AppStore here: