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Local Co-Op

It is possible to play Fable 2 on a single Xbox 360. One will be the main character, and the second controller will play a henchman.

Your friend a two choices:
1. Create their own hero to transfer over the experience and gold back to them.
2. Use one of your characters, tp transfer over the gold and experience to them.

For offline co-op, have your friend turn on the second controller and press start. When the screen comes up, pressing Y on the second controller allows your friend to load up one of your characters (your profile) or one of their own (their own profile). Then they can select a skin, a melee weapon, and a ranged weapon. You also set the split of gold and experience. After everything is set, both of you hit accept, and the game is started. ~ pj44055

Xbox Live Co-Op

The same goes for Xbox Live Co-Op, except you must first download the patch on Xbox Live to be able to connect to each other.

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