Ok, played through turn 1 last night. On G1 I sent 2 subs against the UK Carrier group, ended up losing both subs while only damaging the CV (the Tac landed in Gibralter). On UK1 a combined fleet of 2 DDs, the Egyptian Fighter, the Tac and the damaged CV recreated Taranto taking out the SZ 95 fleet while losing a DD. Italy struck back on her turn with her remaining air and sea units taking out the UK fleet losing a fighter. The French fleet then wiped out the remaining Italians (damn bad rolling on Italy’s part).
At this point I think Italy just has to accept her fleet getting destroyed, and rely on either rebuilding (I’d go all subs first to make the Med dangerous for the Allies) or concentrating on air power to control the Med. At the end of turn 1, Italy had S. France, Bulgaria, Taken back 1 French African Territory (I forget the name), Sudan and 1 other UK east Africa Territory and overrun Alexandria. They are in decent shape in Africa and can likely take Egypt on I2. The Allies control the Med right now, but have no way of reinforcing the land battle in Africa. An Italian fleet may need to wait, or be all subs till the Med is cleared out with German help.
Italy is MEANT to be a challenge, even for the veteran A&A player…. I think its a good challenge too.