Difficulty of translation arises when there exists no language equivalent of similar meanings shared by the source language and target language, in particular, when the source text is cultural-specific. Inappropriate rendition of this cultural terms leads to distortions in the target text. This paper sorts out two types of distortions, which are respectively at dynamic and formal equivalence levels, in the English translation of ”Liaozhai Zhiyi” (聊齋誌異) to discuss the difficulty emerging in literature and cultural translation. In the conclusion, the issue of domestication and foriegnization is brought up to indicate what criterion a translator can follow or refer to in the decision-making process of translation. A new light is given to the implication of foriegnization in a new historical context as well.