Honestly...Italy was not considered any kind of favorite before WC 1990. Italy was going through a rebuilding period....and in Euro 1988 had a mediocre, yet promising tournament. Boys like Viallia, Giannini, Donadoni, Carnevale and Mancini etc. had now burst on de international scene and were considered a real promising group but no one thought they would win. Favorites Brazil went down to Italy just before the WC and beat dem 1-0 on their own home soil with a free kick from Andre Cruz and had won the Copa Ameirca 1989.
The Germans were considered sentimental favorites because it was on European soil, plus Romario broke his leg at PSV and was doubtful. Fans (and bookies) were hoping for a Romario, Careca, Bebeto trifecta. But with Ramario hurt, and Bebeto falling out of favor, Lazaroni's defensive ideaology (it was the football at the time)....the unfortunate Careca, Muller partnership was used. Bookies had Brazil and Germany more or less tied as favorites. Even Holland, the Euro '88 champs were talked more highly of than the Italians with a squad which included Gullit, Van Basten and Rijkaard, if you want to talk sentimental favorites
The Italy bandwagon did not pick up until Schillaci-mania...and then it really picked up steam when Baggio-mania hit. Both of them were expected to ride the bench, but Italy, for all their slick play and strong defense couldn't score a goal for their lives leading up to the WC and certainly couldn't until Schillaci and Baggio (crowd favorites) replaced Viallia and Carnevale, the original pairing at the start of the WC. Ironically Vialli was put back in the starting line-up against Argentina, instead of Baggio, and although he played well...Italy lost. The rest is history