Fleet Rome also seems to reduce some of Italy's options. It basically forces him into an alliance with Austria, by eliminating his ability to attack Trieste with two armies and weakening his ability to protect Venice should Austria try an early attack. However, even in the classic game, I am of the opinion that Italy and Austria are better as allies, so having the extra fleet does help improve Italian prospects in that scenario, since he could then bid for Greece as well as taking Tunis for free.

Keeping that in mind, I think it makes for a much more interesting game, albeit at the expense of Italy potentially getting off to weak start, to play the classic way with an army in Rome. It creates more diplomatic options and possibly intrigue in that the only way Italy can get two builds in 1901 is to take either Trieste, Marseilles, or Munich.

A major supporter of fleet Rome variant was Richard Sharpe, a player that is heavily biased to favor Austria and Germany as they are his favorite nations to play. His personal biases come across very plainly in his book "The Game of Diplomacy" (out of print, but you can find the full text free online).

What exactly do you mean by Chaos Italy? Are you talking about some sort of custom build variant?