Based on the information out there at the moment, initially they were going to do an album of some more obscure Lou songs but Reed presented a series of songs that he had written for the German play, Lulu. The album was recorded in Metallica's San Francisco based studio, and thats about all that is known at the moment. To quote the man himself, Reed says, "A marriage made in heaven. I knew it from the first day we played together: 'Oh man, this is perfection, right in front of me'... They're bringing Metallica, with all that power."
There's no release date or album title, although it seems to be a safe bet that it won't be called Metal Machine Music Pt. II, just the supremely odd revelation that Lou Reed and Metallica collaborated on an album together.