A combination of these three:
The TARDIS' translation systems are linked to the doctor (see 'The Christmas Invasion'). The doctor does not interact much with the Hath (except at the end of the episode), so the TARDIS doesn't make translating a priority.
The TARDIS' translation systems can take a while to warm up/kick in/learn the new language. Maybe the communication of the Hath is not done via sound waves but rather by the size of the bubbles in their breather. The TARDIS could have trouble interpreting other-than-sound-waves-communication.
Martha Jones seems to understand them later on in the episode. It could be that the TARDIS' telepathic field has only established a connection through Martha (and not the others), as she has been in contact with them more. And so the TARDIS could be translating only for her (the telephatic field excludes us viewers) as it learns through her.
A different hypothesis to consider is that the whole episode revolves around the paradox of creating Jenny. The TARDIS goes to the planet on its own because it senses something like the doctor, the translation systems could be affected by the same paradox. It's a ball of timey-whimey...
The creators could have put it there as a dramatic/humorous effect. They could have also put it there to make us understand the Hath through their actions. If we got the correct translation, we would have seen both sides as equal, from the start, rather than favoring the humans over the aliens.