Well GD, in terms of the Balkans it meant that there was just nothing to send elsewhere when they needed to. So from a high level ops view, they were overcommitted in a disastrous way.
Certainly you are correct that division for division, you were not getting much. For starters, the two regiment structure, the artillery meant your combat power against a commonwealth division was very sub-par. And thats not getting to the appalling equipment, flawed doctrine, misuse of its resources etc.
The problems were so bad, and I agree with the author of that book, that trying to disentangle cause and effect is really too difficult. So yes, it really was that bad. As the author also points out, how could Japan with less than twice Italy's total industrial potential outproduce it in terms of aircraft and ships quantity and quality.
There is a fatal flaw in your argument on the the civil war and Ethiopia. You are assuming that there was some type of logical, thinking entity operating and guiding. It was not. This was the same army that never addressed the problem of its soldiers feet by issuing a sock, a military industrial complex so incompetent that its tanks could be knocked out with an actual hurled stone. If they had extra money they would have spent it on some useless crap like continuing to staff a cavalry school/college with 3500 assigned personnel up to the day of surrender.
The money question does not even come close to explaining the systemic problems of the army. In the interwar period it spent more of national income than most other powers but here again is the absurdity of the thinking. During the war it actually shrank its military expenditure as % of GDP??????? WTF!!!