Fulfilling one’s obligation by hearing the Megilla in Hebrew seems intuitive. Ravina points out in the Gemara that there are words in the Megilla whose definition we really do not know (ha’ahashteranim benei haramakhim – see Esther 8:10), so clearly what we need is a proper reading that publicizes the miracle. This can be accomplished with a public Hebrew rendition. Rabbeinu Yehonatan adds that most Jews have a rudimentary understanding of Hebrew, so someone who hears a reading in Hebrew will get the basics of the story, as opposed to someone who hears it in a language with which he is not familiar.
With regard to hearing the Megilla in a language other than Hebrew, it is not clear that the simple teaching of the Mishna is accepted as the halakha. While the Rambam rules that someone who understands a given language can fulfill his mitzva by hearing the Megilla read in that language, the Ramban – basing himself on the Talmud Yerushalmi – argues that that is true only if the language in which the Megilla is read is the only language that the person understands. If he understands Hebrew, he is obligated to hear the Megilla read in Hebrew.
The ruling of the Mishna notwithstanding, Rav and Shmuel are quoted in the Gemara as ruling that the Megilla can be read in Greek – even for people who do not understand Greek. This ruling is accepted as the halakha by the Rambam, although the Ramban disagrees, permitting Greek to be used only by those for whom the only language they understand is Greek. The Mikhtam explains that Greek was considered the universal language at that time, which is why the suggestion is raised that it should be permitted for use by all.