While much of this info was great to see in action, none of it was particularly new. Then Molyneux and the Carter brothers casually laid down the bomb -- Fable will include co-op play.
At least one player (though it may end up allowing four players on at once) will be able to accompany a hero on his quest. Alone, you can gain a sidekick or alter ego. This AI person aids in your quest. But have your buddy plug in a controller and he can control your sidekick. But more impressive, is that your buddy can take a save of his character from his game of Fable and drop it into your game! He has the same powers, abilities, nobility, and alignment.
Playing in tandem, one person must always be "the hero" while the other is the sidekick. The hero is the only one who can gain experience points and is the one the world reacts to. But you can flip-flop who is hero and sidekick with the black button. So, if you are clever, you can have a very evil character and a very heroic character work together. In battle, in towns, when receiving quests, you can switch who is the leader and therefore change how the world reacts to you. It's a bit of a strange idea, but the right team of powers and force could be unstoppable.
After play is done, your buddy can pull out and upload his character back into his game -- with any enhancements he earned while playing with you! Wow.