There is a cyclical element to consider. Leagues do tend to go through periods where the quality drops.
However I think that Italy has suffered due to a couple of coinciding factors.
The quality of the national players has dropped. The success of the 2006 squad was based almost purely on experienced players as a result, it's hard to keep that going. Also not many younger players will have had the chance to come through and experience tha level of play.
The league itself has also suffered in that it has suffered financial hard times. There are very few "top level" players in Serie A these days. Those that are there have either been tried and rejected in England or Spain (Robinho/Ibra) or are coming to the end of their careers (Eto'o).
That never used to be the case.
Even aside from those players it's hard to think of many players that would enter into a discussion about the World's best talent Sneijder is probably the only other one I can think of, off the top of my head.
What has been obvious for a while is the complete lack of pace in the teams. This really stifles them when they try to attack. They can no longer sit back and look to hit teams on the break.
This has meant that they have to attack more. However if you take into account the reduction of talent it simply means that they are genuinely average teams (at that level).
Inter stand out so much, especially last year, as they could play how they wanted. They were solid through the centre, an excellent attacking full back (a key part of the "Italian" way of playing), a skillful playmaker, and pace and goals up front (all be it shared between Eto'o and Milito).
When it was rumoured that Pienaar was going to Milan, I thought that it was an excellent signing for them and a step in the right direction. They'd have been getting someone who is skillful but who also is reasonably quick and works very hard.
Now I like Pienaar, but he's not someone who you would naturally think of if you're considering the Milan teams of the past 20 years. Yet the fact that he would struggle to get into Spurs' starting XI, but walk into theirs shows just how far they have fallen.
There needs to be a concerted effort to produce more "modern" players. (I don't know whether this is happening or not, as it might be, but it's bound to take time to get through.)