[Phanx]

Something like this should work:

local function TranslateLinks(_, _, message, ...)
	local linkType, linkID, linkText = strmatch(message, "|H(.-):(%d+).*%|h[(.+)%]")
	if linkType == "item" then
		local itemName = GetItemInfo(linkID)
		message = gsub(message, linkText, itemName)
	end
	return false, message, ...
end

local events = {
	"CHAT_MSG_BATTLEGROUND",
	"CHAT_MSG_BATTLEGROUND_LEADER",
	"CHAT_MSG_CHANNEL",
	"CHAT_MSG_GUILD",
	"CHAT_MSG_OFFICER",
	"CHAT_MSG_PARTY",
	"CHAT_MSG_PARTY_LEADER",
	"CHAT_MSG_RAID",
	"CHAT_MSG_RAID_LEADER",
	"CHAT_MSG_SAY",
	"CHAT_MSG_YELL",
}

for _, event in pairs(events) do
	ChatFrame_AddMessageEventFilter(event, TranslateLinks)
end

If the color codes are inside the brackets, the pattern will need to be changed.

You could easily extend it to handle other types of links, though I'm not sure there's a clean way (eg. not tooltip scanning) to get information about quests by their questID, and maybe some other link types.