The italians in the end will not capture city or town...they will level them as even the italian command know how costly is urban warfare or simply bypass them cutting them from supply if possible; regarding stopping the italian invasion due to the terrain...well as border with Austria, the border with Jugoslavia was agreed because it gives Italy the best defensive terrain and OTL the Rupnick line aka the Jugoslavian fortification complex at the italian border was not completed at the time of the invasion and was not a serious obstacle
I don't know specifically what tactics the Italians will use when invading Yugoslavia properly, they might avoid towns and cities or level them, probably. That wasn't my point though, my point is the Italian need to advance, they need to outmaneuver the Yugoslavic forces and not advance a few kilometers and then dig in.
You talk about Italy having the best defensive terrain, but the Italians are not on the defensive. The Yugoslavs are and they have a perfect position for defensive operations in the hills and mountains of the balkans. The forticifation complex would have helped more but the natural fortifications would have been enough on its own. The Italians lacked proper mountaineers, engineers and the terrain would make air support less effective as well.
To make my point clear, I don't think this would work (or would be worth the trouble) if there's still a "Yugoslavia". If there's sufficient pull towards independence at least for Croatia, then internal unrest can be supported (Musso was good at this sort of troublemaking, one of his few talents), followed by direct involvement.
Its a possibility, but i don't think the Croats trust the Italians as much as they do the Germans because Hitler was a lot more practical concerning Yugoslavia. I mean Italy needed those territories and would annex a lot more of the lands the Croats would consider their own and were even promised by Mussolini like Bosnia. Besides the partisan activity will probably force Italy to take more and more control as Mussolini didn't like leaving that sort of thing in the hands of others.