You get italics on the search phrase because that is what you are suppose to get. The problem your pointing out is if your titles are too long we truncate them and with that your italic tag is being cut off.
Lets try this instead in search.php you see this code marked in bold. It right now is above the two lines noted as reference take it and place it below those two lines as shown here and you should be fine.
Content visible to verified customers only.
what that does is takes the italic highlight code and place it below the code where we truncate a title if its too long.