The first thing you need to understand is that Mussolini was notoriously suspicious of foreign production. To the point that he'd adamantly refuse to bring in any outside ideas. As a result the Italian army was sorely lacking for many of the key features of what would render a modern army in that time, including motorized troop transport.

Granted, yes, they had tanks that were acceptable (in their time. The critical leap in tank development from the early 1930's and tank designs and ideas for what tanks were about in that period versus the first tanks developed during the war- the panzer 4 (mostly), the M4 Sherman, the Cromwell, the T-34, what have you, Italy didn't make fast enough, and they weren't producing a real contender for the Sherman until it was too late) in their time, their aircraft were actually some of the best in some roles, but as a whole Italy wasn't awfully enthusiastic about the whole, "war" thing.

Looking over economic figures, the Italians simply had nothing going for them. As a whole, the only two things the Axis as a whole would out-produce the allies for were submarines and defensive pillboxes and bunkers. Italy's GDP was only competitive to France's, and I use the term lightly. Italy would only build about 1/10th the total aircraft Germany would in the war, which itself was only about 1/3rd of the total the US would produce. Germany would build around 20 times as many tanks and self propelled guns as Italy. The US would harvest 127 times as much coal, and mine 90 times as much iron ore.

The Italian army performed poorly because it simply did not have the economy and industry backing it. Allegedly Italian command and strategy left a great deal to be desired as well, but it's not something I've read up on.

Oh, and the war wasn't awfully popular for the Italians to begin with. It didn't particularly bother them when things went well but they were pretty vocal about it when things went south, as you can see with their respectful, civil treatment of Mussolini when they forced him to step down.