As mentioned earlier, we are ready with the beta release of English-Malayalam dictionary in DICT format. The RPM, DEB and source packages can be found here in Savannah repository. The steps for installing, configuring and using are documented in SMC Wiki.
The next step is Malayalam-English and English-Malayalam dictionaries, though their plausibility greatly depends on the favourability of CDAC’s reply who owns the required data. We are expecting and hoping that they will make the data available under a free software compatible license.