I usually play and make choices on how I actually would in those situations. It usually turns out to be the "good" one, but there is the occasional "evil" one thrown in there. I despise the halo your character obtains when he/she is fully good/pure though...so to counteract that...I spends many hours gambling, drinking, and sleeping around. I laze about in the inns and charge outlandish prices for rent.
My first playthrough with Fable 2, I actually ended up with a neutral character (who was a gunslinger), which impressed me as I learned a lot about myself and annoyed me because the damn dog was still alive. Then I made files for a good character (swordsman) and an evil character (magic-user).
It's not worth the time. All that happens is at least 1 person takes up most of it. The others start to hate you and you end up being evil anyways. I've already tried it, and nearly ended up dirt poor.
I went 100% good throughout the entire game the first time around, then decided I didn't like people ripping me off. -Bang- One down. Then I realised nobody really cared about bloodstone. One City Down.
Then I just figured, forget it, I'll just kill everyone, everywhere, whenever I felt like it.
Then I gifted someone 10,000,000 Gold =)
The game's pretty unbalanced in my opinion. It's far too easy to change your orientation. All you do to become evil is spend fifteen mins killing everybody you see. All you do to be good is donate to the light. Simple.