How long are you going for? O2 limit the bill as you say to be a max of £40 in a month. If you are going for more than a week and your billing date is not while you are away then this is a good deal!
When I go abroad, I find the easiest thing is to pop into the local phone shops in the closest biggest town and speaking to the staff there (language permitting) and buying a local 3G PAYG sim. I have an Orange Sim for when I am in France (purchased from the Orange shop in Morlaix) and also a Yoigo internet para llever spanish Sim bought in Malaga. Try and find a Phone House (European Carphone Warehouse) as they sell all networks and can offer the best advice.
Normally you only need proof of ID (passport) except for Spain where an address is also required, but there the shop owners usually use their address.
Thanks guys... I will try and get a payg sim in Italy i think and i will check out the data wiki. shame the networks here don't offer abolt on type thing that gives you so much data. i guess the £40 limit is akin to that except the price of data abroad will be huge!!