I've been hearing this a lot lately, and it's a fair question. Italy entered this World Cup as reigning champions and left it in the first round. So what happened to Italy? There is an army of balding men wearing fat ties and slick glasses in RAI studios right now (over)analyzing this very matter, but I will give you my opinion. Since you asked.
The coach was the wrong choice, and he didn’t select or field the right players. To further devastate matters, our best chances at holding it together in spite of the deficit - Buffon and Pirlo - were injured and unable to play all but a few minutes of the first three matches. On the field Italy were limp, lifeless; they played without organization or heart. Except for the dying minutes of the third game against Slovakia, when Pirlo controlled with his calm, unerring passes, Quagliarella exploded with his bloodlust for goal, and Italy came alive. That was actually the hardest part of the tournament to watch, even compared to the embarrassing tie with New Zealand (who doesn't even have a professional soccer league). I was a ball of emotions: furious that Italy had waited so long to turn it on, overjoyed to see them play with heart and fire, and miserable to know the effort was wasted. The hole they'd dug themselves was too deep to climb out of.
Of course I'm ashamed that my team didn't make it out of group play. It's gutting to fall so far so fast, especially when naysayers use it to gripe that Italy didn't really deserve to win in 2006. Still, I believe the story couldn't have ended any other way. This team was not going to win the World Cup again, and the loss only gets more painful as the team advances. I'm almost glad Italy put it to bed so quickly. As a fan, I prefer to know right from the start that there is no hope.
So now what? Now the fans of mighty Italy lick our wounds and we wait. We change our computer background from the World Cup trophy because it isn't ours anymore, and we watch the reconstruction of the Azzurri. We cheer and we grieve, we praise and we curse, we beg and we boast, we demand and we despair, and we wait for the fratelli d'Italia to rise again.