I really enjoyed Fable 2 it's wonderful graphics easy to pick up mechanics and "Just have fun" design made it very enjoyable and it improved on it's predecessor in almost every way. Recently Peter Molyeneux was discussing Fable 3 at microsoft's X10 event in san francisco and it sounds like this new sequel will take the series in some interesting directions.
You can read some of the details here http://www.eurogamer.net/articles/fable-iii-x10-preview but it sounds very interesting. Extending the simplification of the system taking out a lot of the staples like health bar and xp bar making your characters power equate to how many people they have following them. Changing the emote system from a way to stand in the street playing a lute and farting to something much more meaningful and complex with the touch system.
The also have brought back one of the ideas from the original fable that was in the orginal idea bucket that peter molyneux promised the press then got cut due to the limitations of the time. Weapons that morph due to the players actions. It's a bit like the alignment modifiers where you look more and more evil/good as you do things like kick puppies. So as you use a weapon it will take on characteristics of your actions drip with blood or glow with holy aura, if you kill a lot of one thing then it will take on aspects of that animal. They also want to modify the character model in a similar manner ie use a lot of heavy weapons you bulk up use a lot of rapiers or pistols and you become lean and agile use lots of magic and something else.
The progression to industrial age looks like it will make for an interesting backdrop and it sounds like we'll have a plot that isn't quite as wonky as Fable's 2 "I'm missing my dead family so I'll shoot a little boy/girl in the head then build a giant tower" and hopefully there will be less of that terresa woman and her dodgy some time omnicience.
Obviously since a large part of the engine is in place it will be less time to fable 3 than it was to fable 2 currently they are predicting it coming out in the holiday season but we shall see.
All in all it's sounding like one to keep an eye on