The law states that music or images that are at "degraded or low resolution" can be distributed on the Internet "for scientific or educational use, and only when such use is not for profit," according to a rough translation.
Experts that have reviewed the law told the Italian daily La Repubblica that even though MP3's are not specifically mentioned, the fact that the word degraded is used implies the existence of that format, which is by technical definition a "lossy" format that loses some fidelity through degradation. An MP3 is essentially a lower-quality form of the original recording.
This is what happens when non-techies write laws about technology. Anyone remember Ted Stevens and the "tubes?"