--- node_reference/node_reference.module.old	2011-07-16 00:28:27.000000000 +0200
+++ node_reference/node_reference.module	2011-07-16 00:26:28.000000000 +0200
@@ -870,33 +870,42 @@
  *
  * When preparing a translation, load any translations of existing
  * references.
- * @todo Correctly implement after http://drupal.org/node/362021 is fixed.
  */
-function node_reference_field_prepare_translation($entity_type, $entity, $field, $instance, $langcode, &$items) {
-  $addition = array();
-  $addition[$field['field_name']] = array();
+function node_reference_field_prepare_translation($entity_type, $entity, $field, $instance, $langcode, &$items, $source_entity, $source_langcode) {
+  $source_language = $entity->translation_source->language;
   if (isset($entity->translation_source->$field['field_name'])
   && is_array($entity->translation_source->$field['field_name'])) {
-    foreach ($entity->translation_source->$field['field_name'] as $key => $reference) {
-      $reference_node = node_load($reference['nid']);
-      // Test if the referenced node type is translatable and, if so,
-      // load translations if the reference is not for the current language.
-      // We can assume the translation module is present because it invokes 'prepare translation'.
-      if (translation_supported_type($reference_node->type)
-      && !empty($reference_node->language)
-      && $reference_node->language != $node->language
-      && $translations = translation_node_get_translations($reference_node->tnid)) {
-        // If there is a translation for the current language, use it.
-        $addition[$field['field_name']][] = array(
-          'nid' => isset($translations[$node->language])
-            ? $translations[$node->language]->nid
-            : $reference['nid'],
-        );
-      }
-    }
-  }
+  	$references = $entity->translation_source->$field['field_name'];
+  	if (key_exists($source_language, $references)) {
+	  	foreach ($references[$source_language] as $key => $reference) {
+          $options = array('ids' => array());
+	      $reference_node = node_load($reference['nid']);
+	      // Test if the referenced node type is translatable and, if so,
+	      // load translations if the reference is not for the current language.
+	      // We can assume the translation module is present because it invokes 'prepare translation'.
+	      if (translation_supported_type($reference_node->type)
+	      && !empty($reference_node->language)
+	      && $reference_node->language != $entity->language
+	      && $translations = translation_node_get_translations($reference_node->tnid)) {
+            // If there is a translation for the current language store in validation array
+          if(isset($translations[$entity->language])) {
+            $options['ids'][] = $translations[$entity->language]->nid;
+          }
+        }
+            
+        // add original node to validate
+        $options['ids'][] = $reference['nid'];
 
-  return $addition;
+        // filter original content and translated content
+        $refs = node_reference_potential_references($field, $options);
+        $options['ids'] = array_intersect($options['ids'], array_keys($refs));
+        
+        // gets first element of filtered array (translated first, then original).
+        // if not sets FALSE
+        $items[$key] = array('nid' => reset($options['ids']));
+	    }
+  	}
+  }
 }
 
 /**