Liverpool's comeback from 3-0 down to be AC Milan in penalties in 2005. Italy was so embarrassed they went MIA.

Probably no truth to that, but you're right that since then Europe has become a 3 league continent instead of a 4 league continent (EPL, La Liga, Bundesliga). The fact that England has 8 UCL finals teams in that window, Spain 5, Germany 4 and Italy just 3 may support that.

My real suspicion is that Italian teams just don't attract top managers. The only exceptions in the past 10 years where Italy won were with great managers: Ancelotti ('07) and Mourinho ('10). There aren't any great ones in Serie A now (even Benitez at Napoli...though he brought my Liverpool squad the '05 title and almost the '07 title as well).