"Where live the italians?" - Italians should be written with the first capital letter "I", but Duo usually accepts this no matter how you write, even though it's an error. And second, these kind of questions, in English are made by Do/Does, so it should be "Where do the Italians live?"- and that is just too big mistake to overlook.
OK well not capitalising is arguably an orthographic error since it doesn't change how the words work with each other.
I really don't agree that 'Where live the Italians?' is wrong. It's unusual/archaic doesn't mean English doesn't allow for it. You might be being poetic or phrasing it to make a point.
Being a native English speaker, I can honestly say that "Where the Italians live" would not be heard as a question, irrespective of any tonal variations. It might be the title of a book, or film, about places in Italy, but you couldn't say that if you were busy asking where, in the neighborhood, they might reside.
Dalingo8 is correct, listen to him.