While Fable III does a few steps back, it still heavily improves and brings what we true fans really wanted.
Graphics- It being a fable game, of course the graphics were rich and great looking, impressed me as usual.
New weapons/features- The weapons were great and the upgrade system for them was interesting to giving you task to complete to make them stronger, however the fact that augmentations were thrown out of the blue was something i really did not enjoy. I mean who doesn't want to see their blade on fire, surrounded in magical energy, or even with a few sparks of electricity? along with the buffs that some gave you in fable II such as more money or more powerful attacks.
story- the story i personally thought was amazing! the choices you make are fun to experiment with however most are evil or good to be blunt so i went ahead and played one character neutral, one evil, and one good.
Final boss- Now i don't usually critic a final boss but i do have to say compared to the boss in Fable, yes i said Fable not Fable II because that was also disappointing, the final boss is very disappointing in fable III seeing as 1. its not the final boss's true form because he's possessing someone, and 2. the final boss doesn't put up a fight worth you getting goosebumps or worrying about dying unless you just plain suck! ha jk
Online- This is where fable II beats both the first (seeing as it had no online support at all) and the 2nd. The online is great and you can not only become business partners, trade items, and marry the person who joins your world, but they join with their characters! no more crummy henchmen defaults to worry about and your free to roam the world of fable regardless of who has what items or where you both are in the story, which is truly what co op is all about (not many games let you do co op and progress through each other player's stories the way fable III does).
Interaction- I thought it was very good and improved, not much to complain about besides the fact that villagers can become very repetitive in what they say and it can get loads of annoying...