From: Berlin, Germany
Can you tell us the a little more about the general situation? What turn are you playing currently? Where else are the Wallies invested, only in the Med? How does Russia look? Does the Axis maintain any other theatres besides Russia and Italy? Is Vichy intact? How much lift do the Wallies have available for Italy (can they ship in faster that you can rail in?)?
Perspectively you should make sure to hold the mountain range from La Specia, Florence to Ancona with quality German units and swamp all hexes north of that with cheap German units. That will conserve the Italian industry for the Axis cause. The choke 2hex south-east of Rome can be a first line of defense (historical line). Everything further south is a trap in my opinion and not quality units should be railed there. If the Allies haven't landed yet, you should make it as hard as possible, by zocing every single hex with the cheapest units you can find and double stacks in the cities (one 6+ factor garrison/infantry + another cheap unit for Taranto and Naples). It takes some time to rail out the Italians..
Be aware that you will loose supply from Italian cities upon conquest.
“WiF is like sex: sure, it may give some practical results, but that's not why we do it.”
- Richard P. Feynman, 'WiF, Sex, and the Dual Slit Experiment'.