This morning Peter Molyneux himself took yours truly through a demo of Fable 2 just before I managed to get my hands on the controller. There were two areas of the game available to demo in early builds of what is now apparently a finished game (so there were still quite a few bugs in what I saw and played).

From the outset Molyneux couldn't stress enough how the overall point of the game is to engage you in a deeply compelling story with plenty of drama - everything the game does is based off this concept of making you feel new emotions as you play. He demonstrated and exampled this with the loyalty of your dog, who is your AI companion throughout the game, and the denizens of world of Fable II.

Set 500 years after the first Fable, Fable II's game-world is at least one and a half times the size of that of the first and is far more open and lush. It's also very tangible. You can actually walk up to any NPC in the game and immediately ask for their personal information. This will bring up a parchment of paper telling you their name, occupation, sexual orientation, likes and dislikes and so on. What's cool about this though, is you can actually rename them to whatever name you want. That's every NPC in the game. It's but one small example of how you can dynamically alter your own Fable II game-world so when you invite other players in they'll experience something different.

Molyneux showed us how the relationships system works which is a little bit like The Sims. You hold down a button to perform basic social tasks such as Flirt, Joke, be Rude and more and then once selected have even more options for each.

With the Flirt social option, you can then choose to whistle, ask out, pose or more to impress your would be beau. You'll either annoy them or attract them and they'll have an image of you floating over their head indicating that you're on their mind. You can then go back and continue to build your relationship with them and the social skill tree dynamically changes based on how well you're liked or hated giving you deeper social options including the option to propose.

Once you get engaged you then have to perform tasks such as finding a house to live in (according to Pete you can actually live in any house from any village in the game) to keep your partner happy. You can, however, also be engaged to another partner, and another and another. So Mormons can live life normally throughout the game and the rest of us can live the Mormon dream. If your partner finds out you have other girls (or guys) on the go though, you'll have to deal with the consequences.

Creating these social elements then dynamically shifts the social status of towns and villages creating different types of NPCs, which is another way in which your game-world will end up being very different to another players.

Molyneux then introduced us to the Bard, a singer who follows you on your travels and sings songs based on your actions. So if you're a bit of a kleptomaniac, he'll throw together lyrics suggesting you're something of a thief. Molyneux said the Bard utterly annoyed the hell out of him and then killed him out of sight of any other NPCs showing how you can get away with crimes, this also revealed the moral and lawful rule-set of social life in Fable II - you can do whatever you want, but be prepared to either fight your way through the authorities, pay fines or even perform community service.

After the demo I jumped onto one of the vacant machines to give the game my own run-through. One of the things I disliked so much about the first game was the reasonably set path and the invisible walls that kept you from fully exploring the game-world. That's no longer the case here as you can pretty much go anywhere, and one of my favourite discoveries was when I jumped into the water to test the game's freedom of movement and my character actually dived (too often in games characters just fall into water which I think is really annoying and lazy).

The first area available was a village with plenty of people, taverns, blacksmiths and the like. You can walk into any building and really go anywhere you want. You can talk to absolutely anyone and the sense of freedom is on a scale equal to, if not more than, GTA IV. However, unlike GTA IV, all of your actions within the game-world, story drive or not, look to have a lasting affect, or "definitive dynamics" as I like to call it.

It's not known yet if the actual environment changes, but it would be something cool. There's indication there might be moments (probably scripted) in the game that do alter your surroundings, but this hasn't been confirmed.

There's a dynamic weather system and day and night system and the lighting in the village I saw was stunning. Rays pierce through tree tops and leaves and the sun reflects beautifully off the water. Shadows move with the breeze and dynamically shift with the rising and setting of the sun. And this was still an earlier version of the game. My Fable II host assured me the final product is looking even better than this which is a massive reassurance because what I was looking at was pretty damn good as it was.

The second area/level I played through was a forced example of combat. Throughout the game you'll constantly have what is called "bread crumbs" pointing you in the right story direction (you can disable this). It dynamically shifts based on how you're playing the game - so if you're only following the game's story it glows brighter and more vibrantly, but will become dim and weak if you're more of a side-quester. The idea behind the bread crumb system is for times when you may have left a game for an extended period, returned and forgotten what to do next. It's also in place for flow if you're really playing Fable II for its narrative.

Following the glowing "bread crumb" lead me down a few murky paths in an area that was completely opposite the lush, green and vibrant village I had visited before. As I progressed undead were emerging all around me and I gave the one-button combat system a run for its money. The idea here is casual gamers who don't really care about the RPG/leveling up element of the game can just mash their way through as your sword is allocated to X, your gun or rifle to Y and your magic to B. However, those who want to get the most out of the game need only utilise these three buttons in combo hits (ie queuing up a spell, lunging forward with a sword swipe and finishing off with a quick firing of your weapon) or individually with rhythm.

In fact a tribal drumbeat will even kick in if you're attacking with precision and grace and maintaining this will reward you with far more experience points than if you were just mashing your way through. It's wonderfully subtle and deep yet utterly simple and intuitive.

As is the case with any game like this, it's still going to need massive play investment to fully see if all the Lionhead promises have been delivered. But from my time with Peter Molyneux this morning and a heady play through of the demo available I can honestly say all signs point to yes. It's looks absolutely stunning, plays smoothly and rewards players with a penchant for excitement, exploration and wonder. Combat is intuitive and simple, yet deep for players with skill while the whole social element and dynamically changing game-world are verily enticing. All that's left is to wait for the final build to reach AusGamers HQ this October to give it our extensive play-test.