tinyE: Yeah, this is a little touchy and I was hesitant to post it. The consesus is that he did in fact say what he meant to say but there are a lot of people claiming that his accent, and his German, was so bad that to someone in the crowd it might have sounded different. I was only being a smart ass and I'm not one to perpetuate lies so I apologize if I came off that way.
Sound had nothing to do with it. "Berliner" in German means both "a citizen of Berlin" and a sort of "jelly donut" but it's pronounced the same way. It's both a homophone and a homograph.
This myth is based around a misconception of the grammar involved. Basically people who perpetuate this myth claim that the use of the indefinite article "ein" was wrong and that JFK therefore said "Ich bin ein Berliner" (I am a jelly donut) instead of the supposedly correct "Ich bin Berliner" (I am a citizen of Berlin).
However there's several things wrong with this myth:
1. If anything, the version without the article takes on a literal meaning. As in 'I am an actual citizen of Berlin' which I'm pretty sure JFK was not.
2. The infamous jelly donut is called "Berliner" in most of Germany, but not in Berlin where it's known as "Pfannkuchen" (lit. 'pancake').
3. While the version with the indefinite article could technically mean what the myth claims, it is nevertheless the grammatically correct one, allowing for the more figurative meaning 'I am a citizen of the free world'. It's just an ambiguity that comes with the language. But claiming he called himself a jelly donut makes as much sense as calling a lucky coincidence "a fluke" and then being ridiculed for not being able to tell luck apart from a fish. It's an inherently ambiguous phrase that can mean both things depending on context. As the context was very much given, the ambiguity is purely academic.
To cut a long, boring lecture short: He didn't call himself a jelly donut and this myth is virtually nonexistent in Germany because the phrase was perfectly correct.