Can't Italy buy coal and war materials from neutral powers like the United States (which will have an Italian American lobby helping Italy out)? I'd assume they'll try to do so in addition to demanding it from Germany or AH. I agree they'll be in serious trouble if they stay in the war more than a few months--their best policy would be to stay neutral and jump in once the CP are in reach of victory and help in the last few months of the war.
A reasonable Italian demand will be Tunisia, maybe a few French African colonies here and there (especially French Somaliland), and the former County of Nice. Less likely are Corsica and Savoy, although in a total and decisive victory in 1916 or 1917 Germany might help Italy out in this regards to permanently cripple France and indebt Italy to them. They'll likely receive Trento from AH as a price of helping them out.
The mountains between Franceand Italy can be seen in several James Bond movies... every time you have car chases up and down serpentines with the sea down below. its not an invasion friendly terrain.
How high the mountains between Italy and Austria are depends on where. Down near Triest they are lower than between Italy and France, wich explains why the main fighting happened there..
"Isonzo in the Western Alps" seems like quite the battleground and a place where a huge number of Italians and Frenchmen will be tied down. It's likely going to be a major theater for the Italian Navy (since the AH Navy will be free to patrol and raid in their corner of the Mediterranean) and there will probably be plenty of RM-MN combat (the former helped by the Royal Navy) since the coastal route is critical in this theater.
Also, Monaco is in serious danger TTL since they're a French puppet and will likely capitulate to Italy sooner or later. IF Italy doesn't annex the former County of Nice post-war Monaco might be abolished by the French government in the 20s or 30s on some pretext.
I think that would come down to what ends up of Austria and how it handles it’s after war. If they still fall apart I think they would get some of Italian lands on border and Dalmatia. While Germany would take Germans lands who might be for it too depending on how this goes down. Germans likely want to keep that port area just to have one in Mediterranean but they give Italy all of Dalmatia in exchange for Germany getting that.
Italy demanded Trieste more than anything else. Just to join the war Italy will likely require at least Trento from Austria. If AH falls apart then Croatia will want to keep Dalmatia. Maybe Croatia with Istria, Italy with OTL borders (minus South Tyrol), Germany with the port of Koper/Capodistria.