Having been raised in Italy I am intimately familiar with most models of Fiats, including Alfa Romeos. FYI, since the late 80's all Alfas have Fiat underpinnings, including all of the motors which are the exact same as Fiat. The few Alfa motors left all went out of production in the late 90's. They are basically gussied up, re-cladded Fiats (anyone remember the Pontiac treatment to Chevrolets? Same everything plus plenty of vile plastic...)
Know that in Italy until the late 90's the majority of cars were all Fiat products (Fiat, Alfa and Lancia). By 2002-2003 because Fiat lacked any new models, consumers grew tired of their awful quality and monolithic engineering. With the removal of all the protectionism with the tighter knit EU and Euro currency, Italians were no longer contstrained by economic means and bought elsewhere.
About 4-5 years ago Fiat had relaunched itself with many new models. I posted several years ago on a similar thread how Fiat was under rated and their new models had excellent fit and finish. After having been driven in these new cars that rode like a modern car, I was impressed it was every bit as "magic carpet, quiet etc" that you'd expect from all the cars made in the last few years. No longer did Fiat stand out as "the cheapest offering". I too was gleefully optimistic.
Sadly, everyone I know who "rethought" and bought a newer Fiat after having gone to purchase other brands regretted it. They all laud the new "performance, luxury and refinement", but note that their Fiat still falls apart too quickly and has too many defects not bad enough to recall but that seriously hamper drivability and cannot be fixed. Sqeaks and rattles about, and dealer visits occur with disappointing regularity.
After an increase in sales a few years ago, Fiats are starting to become sparse in Italy again.....
Stay away, far away from any Fiat product. If you really like the thought of a Hot Hatch that is small and live in Europe, look at the Renault Clio RS. While having its own share of quality problems, the Renault is 20% less expensive, has more interior room, always wins the car mag comparos, has more power, handles better thanks to a taughter ride. A stripped down track version with meaner suspension is also available and it is actually cheaper still!
If you live in the states, buy the Mazdaspeed 3 to whet your hot hatch desires. But stay far and away from any Italian car brand. They are just as awful as you remember them; it just takes about a year to really find out. The only good thing about the Fiat 500 Mk III is it's "cute". Give it a year, you'll hate it. Trust me on this one!