You know Fable III is getting imminently closer when Lionhead Studios starts to release its developer diaries. Yesterday during X10, the first diary went live, showing off the first ever gameplay footage of the game and giving us an inside look at it.

Fable III takes the concept of character morphing, or how your actions affect your character's appearance, and takes it further. Now your weapons will morph with you, Peter Molyneux explains. The game will also utilize Natal, which will allow players to "touch" things, pick objects up, and perform many other actions.

Fable III is set to release before the holidays this year.

It's no surprise that many believe this year will be the biggest year in gaming history. With all the new AAA games releasing as well as Microsoft's Project Natal, 2010 is going to be important. Lionhead creative director Peter Molyneux believes this as well. According to him, 2010 will be a "landmark year for games," and it represents the "biggest year ever" for himself and the industry.

"I'm most looking forward to the end of 2010 as it represents the biggest year ever for both myself and the industry," Molyneux told MCV. "If we get to the end of the year pulling off half of what's on the cards it will be a landmark year for games."

Lionhead Studios reports that legendary game designer Peter Molyneux fell through some ice a couple days ago, likely while he was testing the real-life event in order to implement it into Fable III. All right, maybe not, but Mr. Molyneux did fall through ice and was fortunately saved.

"Peter Molyneux just broke through pond ice in the Surrey Research Park," tweeted Lionhead. "Both his shoes and the man himself were saved... Be careful on ice!"

[via Destructoid]

We got a look at some new concept art for Lionhead Studio's Fable III. I'm sure it won't be long before we hear Mr. Molyneux telling us how the game will walk our dog etc. etc. Anyways, feast your eyes on the new Bowerstone.

[View with PicLens]

Fable III