http://www.eu4wiki.com/Holy_Roman_Empire#Rein_in_Northern_Italy
http://www.eu4wiki.com/Holy_Roman_Empire_events#The_Shadow_Kingdom
Those are the two ways to stop the shadow kingdom, for the first you need to be emperor, for the second you do not (you make sure the conditions cant be met). Id swear it used to include abruzzi a few weeks ago but the text currently doesnt say so, so nevermind.
The conquering will but afaik you dont get ae from allies only subjects, and they pay with their own diplo and stuff, your mileage may vary. If you ally the pope before conquering he will not be able to hate you so long you keep good relations. You can also vassalize him and reconquest for even less ae if you dont mind holding the papal malus for a while, when you are done adding rome to the hre just use 10 prestige to return the city (and if you are emperor you can save rome for last -> destroy the castle btw, future wars will be one sided).
If you keep badboy down then the pope wont hate you too much "was at war" is only -25. You can fab claims on all of venice which will be added to the excomm list if you are lucky to get it, dont let the pope ally venice you want bad relations with your targets.
If you get ae from allies you can:
* Avoid joining wars as ally but still declare on the pope to wipe his armies, return cores, leave him bankrupt and cancel his alliances.
* Or you can wait to be called in and make sure you switch possession of cities to those with claims so they snatch them, you can then take one of the further away provinces every war and get closer to your objective.
* Or you can declare and switch possession to your allies and wait for them to separate peace, then retake the land and switch to your other ally, and so on until everythings gone. End by releasing urbino (you will diplo vassalize this, 0 ae), and possibly taking rome brielfy -i dont recall the ae, 30?, then you can destroy the castle so they lose every other war that follows.
Dont rival and make sure you get good relations so you are not the one excommunicated. Basically babysit them so they kill the pope for you, then backstab.
Get influence and aim for curia controller since thats a lot of AE reduction stacking. Its not like you have to fully annex italy, you only need the provinces not already in the hre.