Changing markup of the language switcher

I've got two solutions:

Solution #1:
You can copy theme_item_list() and place into the template.php file (replace 'theme' for your_theme_name) but in this way you will remove the div wherever theme_item_list() will be called.

Solution #2:
Create a module and put the language switcher stuff there.

Module files:

file: custom_language_switcher.info

name = Custom language switcher
description = Custom Language Switcher and Links
dependencies[] = locale
package = My custom modules
core = 7.x
files[] = custom_language_switcher.module

file: custom_language_switcher.module

/**
 * @file
 * Custom language switcher and links
 */

/**
 * Implements hook_theme()
 */
function custom_language_switcher_theme() {
  return array(
    'custom_language_switcher_item_list' => array(
      'variables' => array(
        'items' => NULL,
        'title' => NULL,
        'type' => NULL,
        'attributes' => NULL,
        'wrapper' => NULL
      )
    ),
    'custom_language_switcher_links' => array(
      'variables' => array(
        'links' => NULL,
        'attributes' => NULL,
        'heading' => NULL
      )
    )									 
  );
}

/**
 * Implements hook_theme_registry_alter for theme_links()
 */
function custom_language_switcher_theme_registry_alter(&$theme_registry) {

  $mod_path = drupal_get_path('module', 'custom_language_switcher');

  if (isset($theme_registry['links'])) {	
    $theme_registry['links__locale_block']['theme path'] = $mod_path;
    $theme_registry['links__locale_block']['function'] = 'custom_language_switcher_links';
  }
}

/**
 * Custom theme_item_list()
 * The modification allows to customize the list wrapper 
 * Example:
 * theme('item_list', array(
     'items' => $items,
     'title' => 'List title',
     'type' => 'ul',
     'attributes' => $attributes,
     'wrapper' => array('type' => 'div', 'class' => array('pPanel'), 'id' => 'some_id'),
     )
   );
 */
function theme_custom_language_switcher_item_list($variables) {
  $items = $variables['items'];
  $title = $variables['title'];
  $type = $variables['type'];
  $attributes = $variables['attributes'];

  // Jack-PL: Check for the $variables array called 'wrapper'
  $wrapper = $variables['wrapper'];

  if ($wrapper) {
    $wrapper_type = array_shift($wrapper); // only the first key 'type' is required
    $wrapper_attributes = '';
    foreach ($wrapper as $key => $val) {
      if (!is_array($val)) {
        $wrapper_attributes.= ' '.$key.'="'.$val.'"';
      }
      else {
        $wrapper_attributes.= ' '.$key.'="'.implode(' ', $wrapper[$key]).'"';
      }
    }
  }

  // Only output the list container and title, if there are any list items.
  // Check to see whether the block title exists before adding a header.
  // Empty headers are not semantic and present accessibility challenges.
  // Jack-PL: Create custom wrapper
  
  $output = $wrapper ? '<'.$wrapper_type . $wrapper_attributes . '>' : '';
  if (isset($title) && $title !== '') {
    $output .= '<h3>' . $title . '</h3>';
  }
  if (!empty($items)) {
    $output .= "<$type" . drupal_attributes($attributes) . '>';
    $num_items = count($items);
    foreach ($items as $i => $item) {
      $attributes = array();
      $children = array();
      $data = '';
      if (is_array($item)) {
        foreach ($item as $key => $value) {
          if ($key == 'data') {
            $data = $value;
          }
          elseif ($key == 'children') {
            $children = $value;
          }
          else {
            $attributes[$key] = $value;
          }
        }
      }
      else {
        $data = $item;
      }
	  if (count($children) > 0) {
        // Render nested list.
        $data .= theme_item_list(array('items' => $children, 'title' => NULL, 'type' => $type, 'attributes' => $attributes));
      }
      if ($i == 0) {
        $attributes['class'][] = 'first';
      }
      if ($i == $num_items - 1) {
        $attributes['class'][] = 'last';
      }
      $output .= '<li' . drupal_attributes($attributes) . '>' . $data . "</li>\n";
    }
    $output .= "</$type>";
  }
  $output .= $wrapper ? "</$wrapper_type>" : '';
  return $output;
}

/**
 * Custom theme_links.
 */
function custom_language_switcher_links(&$variables) {

  // the global $language variable tells you what the current language is
  global $language;

  // an array of list items
  $items = array();
  foreach($variables['links'] as $lang => $info) {

    $name = $info['language']->native;
    $href = isset($info['href']) ? $info['href'] : '';
    $li_classes = array('list-item-class');
    // if the global language is that of this item's language, add the active class
    if($lang === $language->language){
      $li_classes[] = 'active';
    }
    $link_classes = array('link-class1', 'link-class2');
    $options = array(
      'attributes' => array(
        'class' => $link_classes),
        'language' => $info['language'],
        'html' => true
       );
    $link = l($name, $href, $options);

    // display only translated links
    if ($href) $items[] = array('data' => $link, 'class' => $li_classes);
  }

  // output
  $attributes = array('class' => array('my-list')); 
  $output = theme('custom_language_switcher_item_list', array(
    'items' => $items,
    'title' => '',
    'type'  => 'ul',
    'attributes' => $attributes,
    // You can define your custom wrapper if you wish (it's not required)
    'wrapper' => array(
      'type' => 'div',
      'id' => 'custom-wrapper-id',
      'class' => array('custom-wrapper-class')
    ),
  ));
  return $output;
}

/**
 * Implements hook_node_view_alter().
 */
function custom_language_switcher_node_view_alter(&$build) {
  if (isset($build['links']['translation'])) {
    $build['links'] = array(
      'translation' => array(
      '#theme' => 'links__node__translation',
      '#links' => $build['links']['translation']['#links'],
      '#attributes' => array('id' => 'translation_links', 'class' => array('links'))
      )
    );
  }
}