At the moment (when we release the localized version of the game), it should at the least be possible for anyone to "fansub" any online realm.
You'll be able to get an XML file that contains all of the realm-text, replace the native language text with a different one, and then make your translated XML available to people (e.g., via this forum). Players would then need to copy these files into the appropriate folder on their PCs, and the game would use the fansubs in place of the original text.
I'd hope to have a better in-game system in place at some point, but this is what I have right now (the initial focus was on getting the offline realms into a localizable state).
Moderation of translations should be much easier than initial moderation, as you don't need to consider design etc: just need to see if the translation is a decent rendering of the original text (so, you don't even need to play the game for this, just look at the XMLs side-by-side).
I believe the realm design guidelines specify English-only at the moment, but I don't think there is any technical reason for this (but, it's 7PM and I haven't checked:). I don't *imagine* there would be a technical problem with authoring a realm in, e.g., Russian in-game, and then subbing it to English, for example.