Lionhead's solution is a sparkling trail on screen that Peter's calls the 'breadcrumb trail' - a subtle glittering line on the floor that guides you straight to your objective destination, easing out the need for a hulking mini-map.
Basically, the glittering guideline laid out for you dynamically adapts to guide you to whatever character or quest item is relevant at the time. But as Peter shows, you can still run off the path and explore whenever you want, and the trail will change on the fly so you don't get lost in Fable 2's gigantic world. "You can also turn it off in the pause menu," he says.
"If you want to follow the story, follow the breadcrumb trail. If you want to be more of an adventurer, go off path - the trail will update itself." If you go exploring a lot, says Pete, the trail will look less significant, a less bold.
It's just one of the ways Lionhead is ditching clunky user-interfaces and making Fable 2 look a whole lot more elegant. The bread trail leads our young hero through the snowy Bowerstone market - which doesn't look a world apart from a Victorian Eastenders - eventually reaching a crowd of shoppers huddled in front of a market stool.
In a completely in-game sequence, Peter strolls up to the crowd to see what's going on, and then in a very Assassin's Creed-esque moment he simply holds down the left trigger to whisk the camera over to points of interest - in this case the salesman yelling cockney slang over the crowd of shoppers. At any time you can simply walk away from the action, and carry on exploring.
"We're not forcing you into any cutscene in the game. There's no such thing as a cutscene," says Molyneux.
This sort of seamless integration of narrative and gameplay is all over the place; when dealing with a salesman or quest-giver, the bread trail creates a circle around the character. Walk inside and you'll initiate the quest chatter, a dialogue box will pop up to confirm deals, or you can watch the whole thing in a more traditional, cinematic angle by holding the right trigger.
It looks really great, and could take a lot of the pain and work out of the RPG questing. The other thing that has more of an effect on the narrative, notes Molyneux, are character emotions, which are back in the sequel via a radial menu on the left bumper. To demonstrate, our boy hero farts on a town guard, who instantly gifts us with +13 hatred.
We've tip-toed around the plot up to this point, but it's fair to say there's a heavy narrative behind what's going on.
"There's hell of a lot more story," notes Peter, interrupting a rather emotional story sequence on the big HD telly. "In Fable we didn't really spend enough time on the story," he admits.
We won't ruin anything, but the first 45 minutes of Fable 2's opening contains a pretty hefty spoiler sequence, which once again sends your hero character off on a mission of revenge, sword practice and making sure the dog's been fed properly.
So after fiddling with some menus, we get a bit more into the meat of Fable 2. We're older, packing heat (a big old elephant gun) and standing next to a gigantic lake that looks more Oblivion than something we're used to from this series. Our dog (still glitch-pink) is also enjoying a small trot in the grass.
We were warned at the start of our demo, again in another apology, that the frame rate isn't quite right yet. But here, in a bustling gypsy camp in the forest it's already rock-solid - and there's lots going on.
Shop keepers man stools, children run about (some we spotted were re-enacting the story from the first Fable) and in typical series fashion there's a few hussies loitering about, eager to tell us how "'andsome" we are.
Combat, explains Peter, moving on to a nearby cave infested with nasties, comes in three distinct flavours; sword, gun and magic. As with the first game, the more you use either type of combat, your character will change to look, for example, all beefed up with blue veins for a magic user, or gritty and bruised for a swordsman. You'll find it very difficult to stick with just one though, we're told.