I'm pretty sure you are correct in saying the Italians will allow you to ride up to 12 months as a 'tourist'. If you stay, they will expect you to register the bike in Italy.
The problem will indeed be insurance. You will be lucky if you don't get slammed for non-resident plates - worth checking on the net before you go as it may, as someone has written, not be possible at all. Your Australian insurer MAY help...at a hige price, I'd guess.There is a German company ( tour-insure?) who once quoted me around £80-90 for 2 months, and this covered ALL of Europe. I think you can read more about these people on this site, actually.
I'd check the status of your Australian license, too. The Italians may insist you take their test - or at least part of it - before you can ( in theory ) buy and register an Italian bike.
It would be unfair if they did, of course -but a non-EU license is an opening for them.
Hope it works out!