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I would definitely reccommend Modo Mio on Spring Garden. It's BYOB, the dishes are unique, the service is great and the prixe fixe menu (something like 4 courses for $35) is excellent value.
Make sure you're hungry when you go, though, they serve large portions of very heavy food (and you have to makes sure you have room for their pana cotta!)
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I agree with the emphasis on small BYOB restaurants, which I think best typify the Philly Italian scene. My own vote goes to Melograno, which is not just quintessentially Philly but quintessentially Center City. Right off of Ritterhouse Square, very walkable neighborhood, handsome restaurant space, deftly prepared Italian food.
L'Angolo screams South Philly and has a ton of atmosphere, but my meal there was extremely uneven--amazing appetizers, disastrous pastas, forgettable mains, great desserts.
I'll also mention Modo Mio as being distinctly Philly. It gets a lot of love on this board for its very affordable 4-course menu that lets you pick a choice from each category of the entire menu. But the location is a bit beyond the tourist zone--if you plan on a leisurely stroll after your meal, you might not feel entirely comfortable in that neck of the woods. Also, for my money, the kitchen focuses too much on excess and not enough on the details--rich butter sauces end up where they have no business, pasta cookery is sloppy, proteins can be overdone.
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I'm surprised to hear people talk poorly of Mercato. Yes it is cramped but thats common with BYO's, turn and burn is the only way to make money when you forego alcohol profit. Their food is as close to authentic italian (I used to live in Rome) as I've encountered in Philly. They don't take reservations but they will take your cell phone number and call you when your table is ready. So I usually go across the street to Tria and have a glass of wine or two while I wait. The BEST italian place is probably Vetri but its very expensive and you'll be lucky to get a reservation. Vetri's other restaurant Osteria and another BYOB, Radicchio, get a nod also.
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re: Delucacheesemonger
Doing Modo Mio on the 26th, Vetri on the 27th, Osteria on the 28th - pretty excited.....Ohio isn't known for their Italian.
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i think the most distinctive part about philly italian is the abundance of great BYOBs. your two best bets in my book are Melograno or Mercato, though I'm 0 for my last 5 attempts to walk up to Mercato and get a table before 9:45. Neither is overly dressy, but I personally wouldn't show up in jeans & a tshirt.
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re: tfalbo
I would definitely go for Melograno over Mercato. I was very disappointed in the food my last meal at Mercato - not a pleasant experience when you couple it with the cramped quarters. This made for a very 'warm' (temperature-wise) dining area, with water unable to compensate. Which leads me to another rant about Mercato - their water is never cold enough. I swear the cold water from my bathroom faucet is cooler.
Another place I'd add to the mix is Le Virtu on Passyunk.
L'Angolo would also be worth your consideration - another good BYO.
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