Nipper I was a SONY boy with playstations (all bought at launch day) ... it was just Sonys fault that the PS3 was delayed and then my ps2 drive died on me and some game called TDU was announced for the 360 ... so I became a convert.
So I haven't played Fable ...
Fable 2 is set 500 years after Fable and does sort of follow on ... read the tales of albion on the lionhead site as that will give you all the back story ... the easiest way of describing the era is Dick Turpin (so 1600-1700 sort of time) with early guns, however they have 'stretched' technology so you have clockwork weapons allowing reasonably quick fire
Yes you can be good or evil, pure or corrupt, attractive or pig ugly, thin or fat, muscle bound or not ... lots of character morphs ... also decisions you make change the world you live in, but I won't spoli that ... my character is a 100% good and pure very tall (developing skill i.e. ranged weapons/guns makes you taller), just trying to make her thinner at the moment, eaten too many pies (literally) ... my next character I'm going to go evil and corrupt ... supposedly you can get the horned beast on the box as a morph!
hope that answers everything