Being responsible for the most in-depth Italian-centric mod for TFH, I have philosophized quite a bit over this issue. Other mods (that will go nameless) have actually created a special unit called Italian Infantry that fight worse than say German or Polish infantry. I find that to be an abominable decision. The game gives us countless reasons why one unit will fight better than another -- equipment, doctrine, leadership, experience, and national dissent. Germany is blessed with better leaders, more experienced troops, more national leadership, and more IC. That is more than enough to explain why German troops fought better than Italian troops on most occasions. But the concept that a German unit (merely because they are German) will still perform better than an equally equipped, trained and motivated Italian unit is nonsense. (Sure they are on average taller, but in modern combat that just makes them bigger targets.) The game needs to be premised upon the understanding that all things being equal, they will be equal.
That being said, things were decidedly not equal going into WWII, particularly in the Italian army. There was a significant difference between the more professional parts of the Italian Army (the Alpini, the Bersaglieri, the Grenadiers, the Folgore, the armor and motorized divisions) and the bulk of the regular infantry. As pointed out by Loke, above, Italians on occasion fought remarkably heroic. Six Italian frogmen on manned torpedoes took out two battleships at Alexandria. The determined defense and sacrifice of the Folgore at El Alamein is unquestioned. Tell the Italian tanker in the Ariete riding across the desert, staying in formation even though he is out of ammunition, in his little M13/40 arrayed against Shermans and Crusaders that can easily penetrate his armor that he lacks courage and determination. The Alpini Corps kept their heads during Little Saturn while everyone about them (including Germans and Hungarians) were losing theirs, and the Tridentina were heroic at Nikolayevka. (For a good read check out Sacrifice On The Steepe by Hope Hamilton.) However, those instances were Decima MAS commandos, Folgore paratroopers, Ariete armored and the Alpini, not the regular infantry. The regular infantry was repeatedly humiliated -- the attack on southern France, the attack on Greece, the attack on Egypt. In Greece and France they were given assignments over narrow mountainous terrain doomed to fail, and in Egypt they were seriously outclassed in equipment and transportation. However, there were also serious motivation problems. Problem one was that they were a good natured people asked to fight on the side of evil (but we will not dwell on that). Mostly, they were farmers' sons given their grandfather's rifle, dropped in front of the frozen Don, and told to stop tanks.
In my mod I struggle with this disparity of performance. Italy has an historically accurate and massive OOB, but their multitude of divisions mostly lack sufficient fighting strength, consisting of fascist militia (a new unit) or conscripts (a new weaker infantry-type unit). Just like in real life, Italy looks very powerful on the map, but underperforms craptastically. However, other nations also have their poor divisions earning the "conscript" label. Italy just starts out with more. Even the German SS start out as SS militia, just like the CCNN -- both can later be upgraded to better quality units. Every nation's militia is the same. Every nation's conscripts are the same. Every nation's infantry is the same. An Italian conscript division, if upgraded to regular infantry, given the same equipment, leadership, training and experience, will fight just as well as the equally provided German infantry. As that is the case in real life, so it should be in the game. The trick, of course, is to manage with your limited IC and leadership to upgrade your conscripts to infantry, improve your office ratio, keep up-to-date on your techs and doctrines, fund your upgrades with IC, and get your troops and leaders experience. That can be easier said than done.
