Can't be bothered reading all those posts, so any repetition of previously-made points is purely down to my own laziness. Anyway - how I see it:
Yoshi's Island pretty much dispelled all the myths about Mario coming from anywhere other than the Mushroom World. It's also got rid of the whole "Mario's older than Luigi" thing.
The only real mystery is how the brothers obtained the "Italian" status. I can only assume that their parents were Itallian (or whatever the Mushroomian equivalent of Itallian is - who knows - there could be an Italy in the Mushroom World - but, I'm just speculating as I can only go by the games).
On the subject of Baby Mario and Bowser - this is just an odd time-travel thing, I'm led to assume. Caused by (I'm guessing) Magikoopas (feasable enough, I think). Why baby Bowser is cloned in the Mario Party games, I have no idea, but this could also be attributed to them darn magikoopas.
Was that okay?
~Waddle Dedede @
www.the-warp-zone.com