This story is getting better all the time.
It’s pretty clear from the interview that McCain is a very tired old man who was having trouble concentrating, while being interviewed by a native Spanish speaker with an accent who was speaking pretty fast. And even though she asked him four separate times if he would invite Zapatero to the White House, and helped him out a couple of those times by mentioning that Zapatero is the head of the Spanish government, McCain was confused about who Zapatero was (even though he was doing an interview with a Spanish radio network).
But instead of owning up to this, the McCain campaign, using their standard operating procedure, decided to think up a lie and think one up quick, to wit: McCain was fully intending to say that he would refuse to meet with the head of the government of a NATO ally — a country we are by treaty required to defend with military force if they’re attacked (by someone other than us I suppose). As Kevin Drum and others are pointing out this is a fairly insane position to take, but the campaign people have clearly calculated it’s less damaging than to admit that he was just out of it.