I've played Italy more than any other country. I have only experienced the 'conquest rather than puppet' 1 time. In that case, I was under the impression that I had captured all the Ethiopian units and provinces before I took Addis Ababa. In particular, I think I took out the top level Ethiopian command unit before their capital fell.
Conquering Ethiopia wasn't noticeably better than puppeting them. Whatever units they have left will defend the puppet country, meaning you don't have to. The manpower / IC / Leadership gain is nominal at best. Most importantly (for me), I don't have that country and am more likely to resist the urge to improve a lot of provincial infrastructure. It would be nice if the Ethiopia puppet government would bother to build an Edd to Addis Ababa to Mogadishu highway for me. A strip of green infrastructure really helps the supply situation when the fight does come back to Ethiopia.