They are only talking with the Vatican because they believe (and with reason) that islam will be the majority religion in Italy and Europe in the not so distant future. The talks are a way to set up lines of communication for when Sharia is implemented (look at what has happened in some African areas and in the old Eastern Empire).
By baptizing a muslim though, the Pope is basically telling them that he will not play by their rules. To a muslim, this is punishable by death. Both for the convert and for the Pope.
Excellent article that is also a part of a thread. This baptism could as the orignial online news article commetary has said, could be the start of the spread of the Gospel of Christ among the Muslims. B16 could do to Islam as JPII could do to communism.
http://www.freerepublic.com/focus/f-news/1991162/posts
You have to understand something about the Church.
Also this Pope knows that the Christian faith is growing very strong in the global south and will in the end send missionaries to the countries in the west, this including the Catholic Church which is seeing a lot of this growth, to bring the Gospel back to the west including planting the seeds of faith in the hearts of many of the Muslims.
Well, then...
Time to call for a new Crusade, Benny!