It feels as if we've been waiting a long time for Fable. First announced three years ago at Microsoft's X01 press shindig (where it was called Project Ego), Lionhead's Peter Molyneux promptly declared it to be "the greatest RPG ever". While Molyneux today admits that "really, we just had a few concept sketches and a very basic demo of a hero standing there... I'm just an idiot, I just can't help blurting out games", recent indications are that the game will indeed be one of the finest contemporary role-playing titles.

But although it seems like Fable has been knocking around for ages, Molyneux maintains that its development has actually been relatively speedy. "When you think there were four people sitting around talking about Fable four years ago and, from there, we've had to develop all the technology, all the tools, all the concepts, story and everything from scratch... There were no libraries to go back on. It seems like a long time but it's actually not all that long."

The premise is that the game takes you through an entire life - from childhood onwards - in which your every action has a tangible effect on your character. Classic Molyneux rhetoric, in other words - only this time it really does result in a truly engrossing and absorbing game that combines technical wizardry with depth and sheer accessibility.

"The original concept was really simple," explains Molyneux. "It was about letting the player be the hero they want to be and having this hero evolve from childhood through to being the greatest hero of all time. That hasn't changed. The other part was setting the game in a simulated world. Parts of that have changed. Parts of it were pretty stupid ideas in the first place. One of which was this idea that even trees would grow.

"Of course this is why I shouldn't talk about these things so early because actually, when we implemented that, it took about 50 per cent of the time just to grow the trees. Who cares about growing trees when you've got a hero who can do 50 per cent less things?"

The game begins with your father being killed by bandits and your mother and sister being kidnapped. (Always the way, isn't it?) After your village is razed, you're led to the Guild of Heroes where you're given basic weapons training - from swordplay to magic - which kicks off your progress through the adventure and combat-based game. The Guild also acts as a central hub that you return to for new quests and to update your skills. The crux of proceedings, though, is the level of freedom that players are allowed - and the subsequent impact your actions have on the development of your character.

"Lots of people in lots of games get confused by freedom," says Molyneux. "To me, freedom is all about the interface. The expression system [which allows players to make use of a multitude of expressions and actions when communicating with other characters] is incredibly powerful. As you go and play the game, you get more expressions and more options that you can use within the world. The nice thing about that is it's alignment based.

"So if you walk up to a girl, and you're 'good', the relevant expressions which you could use come up. If you're 'evil', different expressions come up. What you'll also find is that if you say 'hello' then there'll be another set of context-sensitive icons and that's how the flow of the conversation works. The characters within Fable have a certain amount of memory about them. It allows you to build up relationships, which can lead to marriage, sex, people being impressed enough with you to follow you around. And if they follow you around your renown goes up because more people see the things that you do.

"The expression system allows you to do bizarre things - yesterday I saw someone chat a girl up, he flirted with her, they moved in together and got married. And then he said to her 'follow me', took her out at night, broke into someone's house and started robbing the house. She was saying to him 'I should go home, I don't feel safe' and then this guard broke into the house and he used his wife as a human shield against the guard and she just got slaughtered in front of him. I never would have designed the game around that." That's all right then.

If you feel you're veering too much towards the dark side or, conversely, that your character is turning into too much of a simpering do-gooder, there's actually the option at one stage to radically alter your outlook. "When I was playing the game, I got to a point about a third of the way in when I thought, I wish I had been a good guy. Normally I end up really evil," says Molyneux.

"What I always want to try and do when designing games is try to make sure that people don't reload. You just want people to keep playing. So I introduced the concept of the Chapel of Evil and the Chapel of Good. In the Chapel of Good, the more donations you make, the more you change back from evil to good.

"The evil one is slightly more interesting and a lot more fun. You take some villagers, take them into that chapel and there are six possible tortures and you can leave them in there and hear them being stretched on the rack, for example. The longer you leave them in there, the more evil you get."

Rumours that Peter Molyneux's villagers have been sitting in leg irons for the past six weeks cannot be confirmed at the time of writing.

Fable is due to be released for Xbox on 8 October