Yes, Italy was really disappointing -- not just that they didn't advance but that they played so flat, to my eye. I know there is tremendous passion for the game in Italy, so this must be a real disappointment (as with Spain and England).
The point is that only Pirlo, De Rossi and Buffon are really great players, but they are old now, the young ones are just good or decent players. Unfortunately these are the best of today's campionato (italian league). Italy went down Fifa ranking and italian teams missed all the international competitions in the last years. The second place at european cup two years ago was some sort of miracle that masked the poor level of italian leagues.