Astonishing how far urban legends go. This keeps getting distorted further and further. I've heard this go further and further and further from the version I first heard. I wonder if there ever was a real story to begin with. Perry "George A. Gleason" says:

I'm not so sure about translation software... apparently there is a story about the first time this was attempted; an NSA implementation for use on the US-USSR hot line, to speed things along in the event of a crisis.

When they opened the thing up for test, there was a diplomat at each end, and a top military official as well. At the US end, they typed in, "The spirit is willing but the flesh is weak." Then it popped out in Russian, and was typed back in again in Russian. What popped back out in Washington in English was, "The ghost is ready but the meat is raw." Back to the proverbial drawing board.

Presumably things have improved a bit since then, eh...?

-g