Translating other people's stories, ideas and visions from their original language into another one is always quite complicated. Every writer has their own linguistic idiosyncrasies, favourite idioms and unique styles, and conveying something of this effectively in another language requires not just a thorough knowledge of both languages but some sort of empathy with the writer, particularly in imaginative texts.
Folklore is quite unusual in that its original source is almost always the oral tradition of a region rather than any written text. Although a written version will also reflect the mind of the person who documented it, the colloquial, popular nature of the stories is just as important, if not more so. Folk tales are fluid and alive in a similar way to popular songs and they will have been adapted and changed by every storyteller whose hands they have passed through, sometimes for many generations, making them composite pieces. A translator is basically another set of hands that the story passes through on its way to a greater audience.
Literalness and vocabulary
Some strands of translation theory maintain that the translator should try to imitate the original language as closely as possible (including translating idioms and proverbs literally and keeping the original grammatical structures), but this is more an academic exercise than a practical approach to translation, and it doesn't suit folklore very well. The universal nature and themes of folk tales - darkness, retribution for wrongdoing, love winning through (sometimes) etc - need to be reflected in a kind of language that is also universal, comprehensible and meaningful to any native speaker of the language in question. Therefore the vocabulary has to be of a sort that would not be unnatural in speech, involving colloquialism and reasonably straightforward sentence structure. Some characters' speech will need to be more formal - kings and queens, otherworldly beings like fairies and the like - but in general a fairly natural register works better. In terms of proverbs and idioms, it's a question of treading a fine line between trying to create the same sort of effect in the translation as the original text has on its readers and keeping as much of the flavour of the original as possible. On a wider scale as well, the effect that the whole story has on the reader should be as close to the same as possible. So when the shepherd hopelessly wanders the dune where the fairies lived, weeping in the moonlight, it must be as wistful, yearning and sad in English as it was, in this case, in French. The king's son's bizarre battle with the big devil must be as strange and menacing, the oxen as lumbering, the malicious midget as twisted, etc. This can never be done unless producing good, atmospheric English is just as important to the translator as accurately conveying the meaning of the original story.
Dialect
Much like proverbs and idioms, as the folk tales were originally spoken rather than written, they will tend to be very strongly influenced by the dialect of the region they come from, and this can be an important part of the effect of the stories. Examples of this are the Gascon folk tales mentioned above. These were originally told to Félix Arnaudin in Gascon, which he translated into standard French, keeping several Gascon words for things which were specific to the area (generally to do with sheep). These meant a lot more to French readers who were able to compare them with directly analogous words in French, but they would be less effective in English where the words do not echo each other at all - "l'oulhe de bate" in Gascon vs. "l'occasion du battage" in French. And then "threshing time" in English... However, frequently used dialect words like the Gascon for "sheepfold" add a reminder of the stories' exotic origins ("borde" - also much easier to assimilate).
The best moments in translating come when you can detach your mind from intensely concentrating on the words themselves enough to reach the concepts that lie behind them, meaningful in any language and expressible in any language (not the same as just understanding the gist). The essence of language is in the ideas, and when these are fully understood (even if it takes years), any passage can be translated. Without diminishing the importance of trying to stay as close as possible to the original author's choice of words, in any literary translation, and particularly in folk tales, if it's a choice between the spirit and the letter then the spirit has to be the most important thing or everything that matters about the folk tale will be lost.
Ideas from a summer spent translating Contes des Landes de Gascogne - Les fées de la dune (Tales from the Moors of Gascony - The Fairies of the Dune), collected and translated from Gascon into French by Félix Arnaudin. Any and all comments and suggestions welcome.
A good (and unusually accessible) essay on the tension between closely adhering to the original text and producing a comparable effect in the translation is "Principles of Correspondence" by Eugene Nida, in The Translation Studies Reader edited by Lawrence Venuti.