Anyone have any experience and/or knowledge about trading in a foreign (German) registered and licenced car for an Italian registered and licensed car?

Provided that any act of the type is a bit of an adventure - you might want to try and talk to an "expert". Most towns in Italy have one or more ACI points, where they take care of the "pratiche auto". You can try and look for one here: http://www.aci.it/It might be faster than trying to navigate the typically murky waters on your own.