Starting Steps

I found a link tamil typing module like blogger and orkut provides typing Indian lagueages using English letters.

http://drupal.org/project/tamil_type
It can be converted to Malayalm with siple steps
Looking forward to a discuusion

Sunil Kumar has taken the initiative to translate Drupal's interface into Malayalam

Malayalam_D6_package_2 is the current set of completed files (re-ordered and contains only completed files.)
Link to download page for the most recent Malayalam Translation Pack for Drupal 6

The latest working set (all files being worked on) can be found on Sunil's site at: http://sites.google.com/site/sunilkumarmbsite/