There should be a revived and revised version of the Churchill Cup for the 2nd tier nations to allow them the regular competition - even against A sides of the top tier sides would be enough to give them the competitive games they need. IIRC it was stopped because USA and Canada are now fully part of the international series. Not convinced promotion/ relegation play offs would help much to be honest.
I think Italy will only progress more now they have teams in the Celtic League. I can't see how anyone could argue they haven't been an addition to the championship. As has pointed out, Ireland were at a similar standard for most of the 90's, and were probably lucky they weren't in it in those days!