Can't the first "hyvää iltaa" simply be "iltaa"?
I assume this is just a normal response to "Good evening" in Finnish, but the translation "Well, evening" means nothing to me.
Yes. "No, iltaa" is perfectly normal Finnish but the English translation isn't particularly normal English.
It's worse than that. It is not only meaningless but sounds like an attempt to be insulting.
I'd say it's the same as "I wouldn't call it good, but it's definitely evening."
EDIT: Also it doesn't seem insulting at all, but I guess context is key.