http://m-phi.blogspot.com/2011/10/nelson-withdraws-his-claim...
The whole episode: - Reputed Princeton mathematician publishes paper questioning the foundations of math - Terry Tao 'disproves' him in a series of blog comments is one of the more interesting recent happenings in the world of math
I was referring to earlier work by Nelson in which he explains why he thinks Peano Arithmetic may be inconsistent.
Later, in the incident you referred to, he claimed to have an actual proof. Terry Tao showed the proof was wrong, and Nelson accepted this.