There's more than one Italian Campaign scenario, and sometimes the names are confusingly similar! I don't think you're doing anything wrong, it appears the one you're playing simply doesn't model the withdrawals. I'd suggest Italian Campaign PBEM 3.0, by Kransdorf/Custer, which can, by observing some of the honor rules, be played against the PO. It's 173 half-week turns. I think it's on the TOAW III CD, not under classics, but under WWII-Mediterranean. It's also available from the scenario depot at Rugged Defense, go:
http://www.the-strategist.net/RD/phpBB2/...php?p=1090
Don't confuse it with ver 2.0 by Kransdorf alone, which is not as good.
Anyway, it definitely has the troop withdrawals, for both Overlord, and Dragoon.