Lag in fable 3 is, as far as I know, unavoidable... I'm not sure if this applies to the new "black" 360 that came out just before Kinect did, but both my Elite and Arcade 360s suffer this... This usually happens in Millfields, which is the most complex region in the game, due to the amount of different colours and textures (there's a huge lake, several houses, factories, cave openings, hills, graveyards, and is connected to Bowerstone, Silverpines, Driftwood, and a couple of underground mines...not counting the Millfield Mines that can be opened if you decided to drain the lake...)
Can't see how we can do anything about it, except to patch it or something...