To treat Fable as an exercise in simulated ethics or as a game with serious messages regarding issues like violence and theft is to doom the game to failure. This has been posited and then proven by Dan's review. The question, however, is whether there is any other reasonable way to approach the game.
My answer is that there is, and that to treat the game solely as a serious exploration of morals is to damn it with the weight of expectation, rather than allowing the game to succeed on its own merits.
Perhaps the most important word to think about when examining Fable is "serious." It's important because the game is neither serious nor does it take itself seriously. Instead, it has a pervasive sense of humor, possibly because the developers realized that it would be impossible to reconcile the various possible acts of the player within Fable's various systems of interaction and maintain a credible level of pathos.
Fable is highly aware of its status as a game, but not in a subversive manner, like Metal Gear Solid 2. Rather, Fable pokes subtle fun at the clichés and "videogame logic" that hold the game together. The humor is easy to gloss over, but it seems that the developers recognized that the experience would not work as a completely serious one and instead constantly lighten the mood with jokes. The end result, however, is not entirely seamless and feels schizophrenic, as the game never makes it clear whether it intends itself to be a self-parody or not.
But this doesn't put the player totally off-kilter because Fable is not concerned with creating a realistic game-world ("realistic" in the sense of representing our own world) so much as it is with creating a world in which the player can identify logical systems and experiment with them. The emphasis then is less on progressing through the game toward the end, but more on the interactions that the player carries out with the game world.
A major part of how the player interacts with the world is through the morality of the character, as represented by a simple index. As Dan pointed out, the quantification of the character's actions often feels arbitrary or incoherent when compared to our own complex ethical systems. But, if a game is to attempt to craft an algorithm that can reflect the actions/decisions of the player, there will have to be calculations taking place to translate these actions into some kind of discrete system. Part of the problem of doing this translation of decisions into numbers is that Fable is one of very few games that are interested in providing a mechanical representation of moral behavior, which means that there isn't a large body of work to draw upon. The result is that Fable is still taking baby steps in providing some sort of ethical mechanics.
Taking into account that Fable doesn't take itself seriously, the play-oriented nature of its mechanics and the experimental nature of providing discrete values for ethical behaviors, it should not be surprising that Fable's good/evil system works like it does. The point is not to try and simulate a real-world morality system, but instead to allow the player to manipulate his or her relationship with the world of the game, including the simulated inhabitants. The result, like most of Fable, is half-baked, but it should not be rejected out of hand as a false step. Often, failures have more to teach us than successes.
Like the undercurrent of self-parody, the game's focus on interaction as opposed to progression also sometimes feels confusing or distracting. Although it may be a satire of the fact that role-playing games are constantly urging the character to hurry, Fable still does not allow the player to feel comfortable engaging in the very activities that make up the meat of the game. This is a fancy way to say that the pacing of the game is poor, and perhaps a reason why so many have complained about the length of the game—less because of the actual hours spent playing, but more because the game is constantly shoving you along rather than allowing you to enjoy what it has to offer.
I don't want to sound like I'm championing the game as something wonderful or relegating it to the scrap heap. Fable is an unfinished, often unfocused game that has quite a number of flaws, many of which have been addressed by Dan and some of which I hope I've addressed here. But at the same time, there's quite a bit of Fable that works, almost in spite of itself, to make the game entertaining and intriguing. The game is not the revelatory experience that most expected it to be, but it is an enjoyable experience with hints of what could be possible given more a more cohesive design.
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