Reading App for iPad with build-in translator
iTranslate Reader does this.  The actual translation function is great - you can use Word Reference or any of several other sites as your dictionary.  Word Reference is an extremely extensive dictionary. The PDF reading function leaves a lot to be desired though - it lacks a bookmark, so when I stop reading and go back later I always have to find my page again. Hopefully they will fix this.

Until then a better solution is Marvin, another ereader app. You can set this up to use Google translate following these instructions:

http://ebookfriendly.com/custom-translation-marvin-book-reader/

I just started using Marvin but it seems pretty good. However you will need to convert your pdfs into epub format using Calibre (which is free, but it's a bit of a hassle to have to do this). I am still looking for the perfect solution.