Google recently demonstrated a new Google Translate feature "conversation mode" that'll let you speak the text that you want to translate and Google'll convert speech into text, translate the text and use text-to-speech to output the result.
"Google showed off a new application that translates conversations on Android mobiles at a recent conference in Germany. Google employees held a conversation over two Android mobiles with one person speaking German and the other English. The application worked its magic after each persons statement and then referred the translated message back to the other person," reported Simon Thomas.
You can already do that if you install the Google Translate app from the Android Market.