It's quite simple and I believe it is the Google Android translation system.
The processing is being done on Google's server clusters worldwide in the data-centers.
The phone is 3G data roaming in Europe, standard Google Android, translate, send to Google server, get back response.
Just standard Android stuff. You can do it today on an Android phone.
Oh this is Windows Mobile, wrong platform.
Of course this being Google they have their OWN PLATFORM to sell, Windows Mobile is a competitor.
But maybe a 3rd party company will come up with it.