I have it on E/E, and I still haven't beaten the Italian Campaign. I cant even get near Klagenfurt before time is up, and The one time I made it, I was outnumbered.
What am I doing wrong?
Well, there are a lot of things that could be going wrong for you, but it's difficult to offer judgment without knowing any specifics. Are you playing through the battles yourself, or autoresolving to save time? Are you using balanced armies (that is, armies with a good mix of unit types, e.g. infantry, cavalry, artillery)? Are you making wise investments with the money you gain through conquering territories, namely in infrastructure and money-earning upgrades? Are you allowing your armies time to recuperate and "heal" in home regions following tough battles, versus throwing them into battle one turn after another?
Honestly, I found the Italian campaign to be significantly harder than the Egyptian or European campaigns; you have to be careful to strike a good balance between promptness in conquering enemy territories, upgrading your economy, replenishing your forces, and using smart diplomacy to keep your borders safe whenever possible. (By which I mean, why take on Venice, Austria, and the Papal States all at once, when you can make peace with one or two of them and thus free up flanks for your forces?)
If it's the battles that are you dragging you down, don't feel too bad; I first started playing this series with the original Medieval, and I was absolutely horrible. There is a learning curve to this game, but it tends to be very rewarding once you give it enough time and start to figure things out (like keeping your forces moving during battle whenever possible, attacking the enemy's flanks and protecting your own, making good use of terrain, etc.). If you need more help than that, look up some FAQs/guides on the net that can help you with stuff like economy/battle tactics/etc. Hope this helps.
It's hard to say, but the most common reasons for losing the Italian campaign are not being aggressive enough, and losing too many men per battle.
First, don't be afraid to attack. The most scarce resource on the Italian campaign is time, so use each turn to the fullest. You have 3 good generals and relatively large starting armies. You have a lot of movement points on the map; don't waste them by sitting around. The Coalition forces are fragmented and usually don't attack you (unless you wait around for it). If you're on on E/E, this is practically guaranteed. Therefore, you should move fast and hit hard in the initial phase. Use your money wisely, and don't bother building the higher-end, expensive building upgrades -- they won't pay for themselves within the time limit.
As a checkpoint, you should have taken Mantua before the end of 1796. Preferably you should be in Milan and Lodi by Turn 6. This way you have a very nice income, you don't waste time with Piedmont, the Austrians haven't trained many troops yet, and there's a clear path to Venice (or through it, if you buy military access from them) and Klagenfurt before the end of 1796.
For the second, in campaign battles, you must preserve your army. Winning a campaign battle (that isn't the final battle) and losing 50% of men is really a loss. Stay on the defensive on the tactical map; shoot opposing line infantry with artillery and skirmishers as long as your time limit allows; isolate enemy units and attack each one with multiple units of your own, to get them to rout faster. Every 5 line infantry lost is another turn you have to sit around at a supply post for replenishment or reinforcement, so try to keep the kill to loss ratio as high as possible.
The Italian (and maybe the Egyptian) campaign is probably the only one that requires this kind of play. The other campaigns allow you to play turtle, as they don't have the insane time limit.