Germany would have been aware of many of Italy's deficiencies. They had been allied against Austria in 1866 when Italy lost its segment of the war, and was bailed out at the peace table by Germany. So Germany didn't expect much from Italy, who had done "just enough" to enable the Germans to win the war. Nor did Germany offer much.
Basically, the alliance with Italy was a defensive alliance. The terms of the Triple Alliance called for Italy to remain neutral in the event of a war between Austria-Hungary and Russia. It also called for Italy to participate only if Germany (or Austria) were attacked by France, and vice-versa. (Italy used this loophole to remain neutral in 1914; Germany struck the first blow against France.) Italy did later violate the terms of the alliance in 1915 by joining the Allies, specifically the Russians, in a war against Austria-Hungary (and Germany). This represented a "downward deviation" from Germany's expectations.