Not sure I understand the issues people are having.
Italy, like most of Europe, is mobile based. Wifi is limited because its not very mobile. I lived in Europe 10 years ago and wifi availability was good. I spend time there every year and have noticed its not at all plentiful anymore except the UK. Its progress.
Cellular plans are (relative to the US) cheap, flexible and coverage is superb. Outside of the major cities 3G can be an issue in Italy, but Edge is always available. That's always worked for me however, I vacation there and the last thing I want to do on a vacation is sit in front of a computer screen.
The issue with the iPhone is, unless you have jailbroken it, its locked to ATT. You knew that when you bought it. If its jailbroken, you will find prepaid plans that cost a fraction of what ATT is charging you with no contracts.