The Italian system isn't perfect (far from it), but then neither is the U.S. system (oh, gosh, far, far from it).
What happened in Italy actually shows that the judicial system of appeal works: the higher court basically told the lower court that they had messed up, and that they should reconsider the evidence. (And no, the higher court did not say that Ms Knox was innocent - just that the evidence had to be reconsidered.)
The main failing with the Italian system is that it is so slow and bureaucratic, even in the case of serious charges like this one. Not long ago, defense lawyers played the system by delaying and delaying, since they knew that at fairly regular intervals (every six or seven years, or so) the national legislature would basically say that the system is overloaded, and declare an amnesty for everyone who had been on trial (and in prison waiting for trial) a certain number of years.