I also think that the story would have been better served had Itachi remained a true blue villain..... but then again I also think Sasuke staying a villain would have been a positive. The whole "turning into what you hate most" thing. But I've hijacked enough threads with that talk lol.
Right, I think Itachi made a much better villain than he did a peace dove. As the reformed Itachi, all he did was spout advice to Naruto that he never followed himself. It's ironic, because just as Sasuke was the one to go to the Namikaze secret clan compound instead of Naruto, Naruto was the one to be council and coached by Itachi, not Sasuke.
I liked Itachi best as the villain. I think he would have been more convincing in his reformed edo-tensei state if he had been presented to be at least a little torn about his choices while he was alive. Or if at the very end we could have seen a few panels of him working for Konoha. Instead, we got the Kishimoto special: Itachi was bad until Kishi decided he was good. And then he was good, no matter what he'd done before.
As for Sasuke, he seemed the opposite, to never truly commit to the dark side. There were always too many ways out, too many convenient excuses. He didn't kill very many people, he didn't follow through on his threats (which btw he changed with whiplash regularity). He was manipulated by everyone he knew, and he railed against that, but he was never able to fully overcome it.
Rewriting Itachi and Sasuke:
If it had been better written, Itachi could have been a convincing villain who was slowly revealed to have more backstory and conflicted interests than was on the surface, as seen from the point of view of Sasuke's childhood rage as it was presented first to the reader. Then when Sasuke finally challenges Itachi, the reader has a sinking feeling that something is not right about this. That Itachi's saying things that make too much sense, until even Sasuke can't ignore it. But he smothers his doubt because he's too far in to back out now. He kills Itachi in a rage, ignoring everything Itachi's saying and everything that's inside him telling him to be cautious and hear him out. And in that moment, Sasuke learns the truth about Itachi (through a deathbed confession from Itachi), and Sasuke's role as the new rageful vindictive villain of the series is cemented. He is still the avenger, only this time he is adding his brother's death on to the roll of lives taken by Konoha. And from there on, he joins the Akatsuki and forms his team with the sole purpose of taking down the elders of Konoha and anyone else who stands in his way. He rampages for a while, killing off heads of state, until he mellows out and realizes that instead of unseating the powers that be, he should become the ultimate powerhouse. He should control a village, a country. And he sets his sights on Konoha, determined to that only he can better rule the village that ordered the execution of his family. And he has a deep sense that the position is owed to him anyway, being the last Uchiha, the one that Itachi bargained the lives of all his clan for. The Hokage seat should be his, and he is determined to take. But in doing that he will be locked in a rivalry with the one person who's ever been a challenge: Naruto.
Of course, this takes out the element of redemption in Sasuke's storyline. So Naruto would have to work extra hard to keep his goal of rescuing Sasuke from the darkness. And as in the manga, Itachi couldn't step in a redeem Sasuke and make Naruto's task easier. Naruto would have to do the hard work all on his own.
Anyway, to me, by adding those dynamics to Sasuke and Itachi's relationship it would have been easier to follow in the manga instead of the mishmash of reasoning we were handed.
I don't think Itachi knew about Obito. He always referred to him as Madara, and even told Sasuke that he was Madara. I think he was like Nagato and Konan in that regard.
I wonder. Obito said Itachi was always thinking several steps ahead, even in death. So I wouldn't be surprised if he did know. Especially since he would have grown up with Obito in the Uchiha clan. And he would have known Tobi's antics were just an act, if Itachi also knew he was Madara. So it's not too big of a leap to think he was doing all that silly behavior for a purpose.
But I don't think there's any way we could know for certain whether Itachi did or did not know Tobi's true identity.