The latest:

Last week, Berlusconi announced that now there are talks with a “foreign firm”, about an “alliance”. Obviously there were no actual details, just the same vague declarations that have been forthcoming since last spring. Why anyone would want to partner with Alitalia is a good question… it would be sort of like dancing with a cadaver.

The Economist has a good writeup of the situation so far:

If the government can corral new investors for Alitalia, it will then have to decide how to split the firm. The law says Alitalia would have to go through a procedure similar to bankruptcy in order to split itself in two and have its debt stay with one half, says Edoardo Staunovo Polacco, a lawyer who specialises in bankruptcy. The government wants to revise the law to speed things up, but has so far denied that Alitalia will be placed in bankruptcy.

In short: the government might craft a special bankruptcy law just for Alitalia in order to split the company in two: one good part that keeps going, and one part junk with all the debts that can then safely go down the drain.