Anyways, how would fascism be seen here if the Nazis still lose? Would it be seen much like communism is IOTL?
I think it would be pretty toxic and polarizing in the liberal Allied circles veering into Cold War. Note, while I agree to disagree about the people who seem so interested in proving the Soviet Union was indeed close to collapse, and acknowledge I am pretty firmly prejudiced in my belief the Soviets were freaking indestructable--because of course they could soak up horrible amounts of damage and keep coming, not because they shrugged it off--and attacking them was simply suicide, at any rate I think I ought to be able to get an amen that if the Nazis could break the USSR, they would not lose, at least not to the extent of collapsing completely. If they can break and hold the choice former Soviet territory, they have won. One can write Hail Mary passes in which the British develop the A bomb and come back later and blast them to smithereens, but honestly I think if Hitler can secure western Russia and break Soviet resistance to levels that can be contained beyond the Urals, he's got it made. Not everything is in his favor, but the Germans could then start developing nukes at their leisure, and probably would. Heisenberg et al concluded A bombs would not be practical before the optimistically hoped for end of "the current war," but Hitler bloody well expects another war with Britain and the USA and maybe Japan pretty soon. How else is he going to kill all the Jews?
So....Soviet collapse is something that if I am wrong, can happen much sooner than I think, and that is exactly what Hitler was counting on after all. Then Germany is much better able to fight Britain in the long haul and for that very reason is more likely to offer a truce and perhaps to get one. I suppose Churchill won't let up but he might get yanked out of office and someone who will negotiate will be put in. Now, the British are hardly in an abject position, particularly in a Neutral Fascist Italy TL, so they don't need to concede much. But even if the truce amounts to containment, with the British having a free hand to hinder German attempts to establish trade outside the zones they control, they control in this scenario a whole hell of a lot. So German defeat, if they can beat the Russians, is at any rate a long way off.
OTOH stipulating the Reich fails, I think that is tantamount to saying USSR survives, and if they survive they probably are very much in at the kill. At the very least they retain their prewar territory which was formidable enough, and are in the running for developing A bombs. More likely they are all over northeast Europe, quite possibly holding all of the Baltic coast and to the North Sea. (Again, Italy's influence diverts war efforts northward).
Italy will be considered a key player in Soviet containment, and it will be no questions asked much as Franco was rehabilitated post war.
But not all people in liberal countries will find this acceptable. It very possibly means a really nasty Red Scare crackdown shifting the Overton Window far right, normalizing Italian practices as reasonable and necessary and putting a hard chill on leftism generally.
Now we might get some weird configurations. For instance I see a lot of right wing TLs (not so much on this site, though someone who is famous, not for AH but other things, did try it here, not sure what their status is now) which suggest that racism is not an inherently right wing thing and that a hard attitude against radicals is not inconsistent with an end to racism. I don't buy it one little bit, but I could be wrong about that too. Call this the Tom Clancy mode of thinking, color blind reaction, including perhaps right wing forms of feminism and who knows, maybe LBGQ etc acceptance on aggressively anti-communist terms, whatever.
But by default I think the culture wars battle lines have been drawn as they have for deep reasons relating to deep ideology and that if Mussolini is a major bastion of containment, the tendency will be toward normalizing Fascism (with Nazi pathologies limited to a relative few idiosyncratic markers, while other things we think of as part of the package are normalized) and with it will come resistance to civil rights, authoritarian police state practices, censored dialog. In a sense there is always a kind of censorship going on, but this would be more intrusive and cross the line to actual literal censorship, the attempt to erase inconvenient arguments and facts and silence the uncooperative, not merely to use social tactics to isolate and discredit but to make them go away.
Now actually I am not 100 percent sure this would be substantially worse than OTL, really. Actual censorship seems to be a rare and unusual thing in our post war world...we think. We can't know what has been erased, but that way madness lies, and it does seem to be the nature of things that censorship leaves traces we'd notice. But if social isolation, discrediting, gets the job done, are we substantially better off really?
I suppose that while association with Mussolini normalizes fascism, Fascism's association with the wider liberal world will make the Fascists more normal. Toleration of diversity will probably seep into Italy as Italy gets more prosperous in association with the established powers. Perhaps Italy will return to parliamentary norms and tolerate diverse political factions, perhaps it is more likely that division and diversity will arise within established Fascist circles and patronage of various factions will cover a renaissance of liberalism within formally Fascist institutions.
Fundamentally though it looks ugly to me.