The Nazi Zombies idea has been around for quite some time. I'm unsure of where I heard it first, but I know that I first heard it in 1999 and was blown away that they'd have tried something like this. However, the version I heard was that they were successful in creating zombies, but the zombies literally did nothing. They could "wander" around, but when placed in an unsuspecting village they just walked the streets randomly with the inhabitants gawking at what appeared to be "morons".
It was scrapped shortly after. If indeed true, I'd hate to be one of the poor soldiers used for that experiment. On the bright side though, they supposedly only used dead soldiers. This was so they could have a constant number of active soldiers. You die? No problem, a quick fix and you're back out on the field, albeit, with no soul.