Dolce fare niente = (It is) sweet to do nothing
Posso fare niente = I can do nothing (eg. I cannot prevent it)
Non posso fare niente = I cannot do nothing (ie. I cannot stand there and let it happen)
Non posso fare nulla = I cannot do anything
Please tell me if my logic is wrong! I have a degree in French and Italian, spent time at Milan University (albeit over 40years ago) and disagree with D/L.
This sentence is at best ambiguous and I believe should be dropped.
Posso fare niente (odd sentence) means 'I am allowed to do nothing'.
Non posso far niente/nulla both mean 'I can't do anything'.
Non posso non fare niente is the one you should use for your 'I cannot stand there and let it happen'.
The use of the double negative is very common in Italian and it needs to be understood so it would not be a good idea to drop this kind of sentences.