Damn, too small for me to translate anything!!

And yeah, probably a flashback. All flashbacks in Naruto have black margins, so yep, flashback.

But why, though? Is Orochimaru remembering something about Itachi because Sasuke looked like him during the fight? Or is it Orochimaru remembering Itachi and thinking he'll be able to beat him now that he has a sharingan?

Also, Itachi has girly eyes. They just look so, so girly there.