Historical accuracy is a different flavor depending what you are looking for.
But first i'll say, Wif is a great "What if", game. WiF is a great game to see the combined impact of Air, Sea and Naval warfare on a global scale.The foundation of the game is sound. Its based on the history of WWII. Playablity vs realism will always come up, but overall, the game works.
Your question about Italian capabilities, is not dependent on if or what option, is used or not used. Italy's capabilities are accurate, given the Axis overall military and economic picture. What the Italian player decides to build will influence its impact during the game. Where to deploy is another choice, as well as, how much the Italian and German Player are willing to cooperate with each other.
Italy can decide to expand its Air Force beyond what was historical, but at a cost. It can then choose to become the leader in Strategic air power and prosecute a bombing campaign of England & later the USSR, never seen in history. (And yes i have done this in a game, with mixed results.) But the cost is paid for by the Navy and Army.
If the Italian player decides to pursue a North African adventure, that's a choice that will influence builds. To increase longevity in North Africa, transports, convoys, naval airpower, and surface ships are all needed. But the devil is in the details. Build a CV or not. Lay down new ship hulls or not. How many pilots will be enough. What kind of ratio of Fighters to Bombers. What is the German player willing to commit in the med. What is a fair exchange between the nations. Will the Italian nation have to invest in a Synthetic oil plant? Oh and we can't forget, how much of a land force is going to be committed. Italy will sustain a force in North Africa equal to the investment to project it and sustain it. The Allies will disrupt those plans, no matter how well laid.
No nation in the game can foresee how much it will expand its various military arms. Losses dictate replacements. Yearly additions to force pools change the face each nation wears. Choosing to Advance build aircraft and scraping the obsolent gives the game some depth you wont see in many games. I'm just scratch the surface.
Asking if the game is historically accurate is going to get you many answers. But mostly they will be yes, it is. To the limit a game can be played to wargame WWII.