Microsoft thrall and game designer Peter Molyneux has confirmed that Fable III will be episodic, stating that "the first big episodes" will make up the main game, and smaller installments shall follow as DLC.
"I've often thought it would be brilliant to be walking through Charles Dickens' London. It was such a dark place and very episodic too -- so we're doing that with Fable III," he explains. "We'll give you the first big episodes, and you'll be able to download new episodes, which is analogous to the way Dickens wrote."
Molyneux also says that DLC will be handled within the game, as some of Albion's shops are connected to the Internet. This eliminates the need to use what he calls "some horrible dashboard" when purchasing content.
On the subject of Natal, the designer explained that waggle is purely optional: "You still need a controller to play Fable III but there are places in the world where you can use Natal, where it's cute, funny, engaging. You don't need it but it does enable an enhanced Fable III."
So, how about that Fable III?
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