Because France separates the two countries the war would primarily be fought at sea and in the air. Italy has a bigger navy with more combat ships. The air forces of the two countries are relatively even. Because of this Italy would win in a war. Unless something catastrophic happened.
Assuming the war would be fought over the Mediterranean sea, Spain would be able to send its superior ground forces over seas into the islands of Italy, thus being able to set up posts very close to Italy's main grounds. (Are we factoring in chemical warfare?)
Yes but even if Spain does make a foothold the terrain of Italy is extremely hostile to the attacker and favors the defender. As long as Italy's generals are competent they can win the ground war. Italy also has advanced weapon systems including their own tanks and tank destroyers where as much of Spain's equipment is foreign. (Also chemical weapons are not allowed since in this war both sides are agreeing to the Geneva Conventions.)