You'll still need a controller to play.
Speaking to bit-tech at the recent South by Southwest conference, Lionhead boss Peter Molyneux revealed that Xbox 360 gamers with Natal will be able to unlock an "enhanced Fable III".
"We've been working on Natal for some time - we created Milo for the first demo - and we'd be crazy not to integrate the two," said Molyneux. "I have to be careful what I say, there are PR policeman in the audience with sniper rifles… Natal is a fantastic amazing device because it's so new and different. It makes designers like me sweat like never before. We were getting lazy, tweaking people's thumbs for 20 years. A button does this, it's all so standard. We, as an industry, we have failed, to some extent, to create a unique form of entertainment and Natal makes you [as a games designer] think again.
"You still need a controller to play Fable III but there are places in the world where you can use Natal, where it's cute, funny, engaging. You don't need it but it does enable an enhanced Fable 3."
Molyneux has said that development of Fable III will stop at Thanksgiving, pointing to an early December 2010 release.