Challenge #42 had an article on Italy in 2300 which included some information on what happened during the Twilight War. I don't have a copy to hand any more but here's a couple of quotes that were posted in an earlier discussion here about the location of the Pope.
Quote:
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"The Nuova Italia movement was based in Venice, the only city to escape nuclear attack. Nevertheless, Rome remained the focus for the "idea of Italy,~ and the return of central authority to a largely rebuilt Rome In 2100 represented the climax of over a century's work."
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Quote:
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"Naturally defensible Perugia became the retreat of what was left of the papacy during World War III and has remained the papal city ever since."
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If anyone has the full article they may be able to add more detail.