This company (MDI) has been working on this for years and I would imagine they have most of the problems worked out by now (and no, the tanks do not explode upon impact). The connection with TATA is for technology for the power train.
I believe this is indeed the real deal. They had one at the NY auto show in March. The one being proposed for the US would be the larger citiCAT. The OneCAT pictured in this thread, while licensed for the US will be available in other markets first, and maybe eventually here. In between is the miniCAT (which is the one that looks sort of like the TATA nano) and features three across seating, with the driver in the center.
If you like the idea of smartville, the idea behind the MDI turn-key factory is as good, and scalable.
And remember, the jokes made here (and elsewhere) about the CAT cars are just like the jokes made about the smart car by the SUV owners etc.
I'm hoping the MDI will be my next car.