Italy is in for a world of hurt when the real colonial big boys get going. Britian and France have huge resources and populations and access to the world, whereas Italy (whilst having plenty of the former two) is surrounded on all sides and can easily be trapped in the Med (even if they rule it) by one other power.
It does mean that they'll lose pretty much all their overseas possessions outside the Med sea. However, it also means that the global empires of the 18th and 19th centuries can deal with Italy without worrying about colonies (except in North Africa). It would be very good, strictly speaking, for the British to have a strong Italy controlling the Med and keeping all their actual rivals on their toes, for example.
If this was real history, you would certainly be correct. The British, French, Spanish, Dutch, etc. regularly seized each other's colonies, particularly the various islands in the Caribbean, and then dared the other to do something about it. Would their rival risk a major European war over, say, Guadeloupe? In some cases, things escalated, but most of the time the fighting was restricted to the New World. In a closer approximation of real history, an Italian colonial empire in this style would have been almost impossible to maintain against exactly that sort of threat, as you mention.
However, and thankfully (for me at any rate), the game mechanics create the exact opposite situation. In order for one of the other colonial powers to take even one of my overseas colonies, they still need to defeat me in a major European war. So, the game essentially protects me from the most critical vulnerability I have. Being penned into the Mediterranean a logistical challenge, but as long as I maintain a naval advantage against most of my rivals (by this point in the game I had built up the largest navy in the world) I am still largely free to do what I want. Even if one of my rivals parks a fleet in the Straits of Gibraltar, my navy can still blast their way through in most cases.
Not to give away spoilers, but there will be a few situations in the near future of the AAR where I was faced by this very issue. I was forced to cede ground early in the war overseas because I was not able to immediately protect my territories, but then was able to win in the end by stacking victories in Europe.