I'd like to put my two cents in if I may (going to even if I may not):
Personally I think Jack is still alive, this is my reasoning:
1- The hero of oakvale DID take the sword of Aeons, that's a lot of power who wouldn't?
But by doing this he had to kill his sister Theresa, who IS still alive through the next three games (II, III, and The Journey).
2- Lionhead has lied about things before, not just mechanics of the game. I remember when Fable II was being made, we were told there would be a Tower we would return to multiple times, going deeper into the dungeon each time. This tower became the spire, we went to it twice.
3- The Hero of Oakvale took the sword of Aeons, why not take the power Jack's mask promised?
4- Even if the hero destroyed the mask, Jack's soul escaped from it and into a dragon the first time, why couldn't his soul escape again? It's his freakin mask, he can do what he wants right? What would stop him from fleeing the mask before it was destroyed? Or when it was destroyed why wouldn't that release his soul, instead of destroying it?
5- (this point may or may not be correct, I never experienced it myself) My friend told me there is a book that said: A man named Jack appeared before Lucien, and convinced him to build the Spire.
6- Scythe (William Black A.K.A The first Archon), and Theresa are still alive, why not Jack, a being more powerfl than both of them combined?
7- If the hero wore the mask, then he would not have any children. Bulloney, in Fable: the Lost Chapters (as well as the original) there are NUMEROUS oppurtunities to do the nasty, there's even a bordello he could've gone to. ANY of the girls the hero slept with could've born his children, and he nor Jack would know anything about it, allowing the bloodline to flourish.
8- It's a game, with a fictional story to it. The writer's can do whatever they want. If fans say they want to see their favourite villain return, they can make money off of it by bringing him back. If they did this I would prefer them not to butcher the character, in fact I have a preferred way for Jack to come back AND a way to play the game.
The Hero of Oakvale was, and is the strongest of all the heroes (except maybe William Black at the top of his game), and he beat Jack. If you played the game enough, and knew it well, you could be the Dragon Jack with two shots WITHOUT cheating or mods. The hero of oakvale ALSO probably is Jack now (at least they way I think the game plays out, you could jut treat this as a crappy fanfic if you like), which means Jack has all his godfearing power plus the hero of Oakvale's. This would make Jack the strongest being in existence, capable of taking over/destroying the world overnight. Why wouldn't he do this? Perhaps it isn't challenging enough, or maybe something came along, or WILL come along that is stronger than him, so he needs the spire to be built again so he can make his wish. He bides his time studying the people of Albion, looking for the best oppurtunity to make put his plan into action. Five-hundred years later he sees Lucien, a rich man with all the resources and money to rebuild the spire. Lucien's wife and daughter die (by Jack's doing?), and Jack tells Lucien of the Spire (hands him a book, or tells him himself?). Lucien then builds the spire. Jack is pleased by this, however he is off in Aurora on personal business. The hero of Bowerstone defeats Lucien, and Theresa takes control of the Spire before Jack realizes what has happened. He returns, infuriated and again begins to bide his time until he can take control of the spire and have his desires become reality. The Crawler grows Jack's army in Aurora until it wages war against Albion, Theresa leaves the Spire (Fable the Journey?) to meet with the Hero of Bowerstone's child, and guide them to the throne, and defeat the Crawler. Theresa is no longer at the spire, leaving it vulnerable to Jack, unless she made a wish, or cast a spell to protect it while she was gone. Now Jack is madder than ever and decides he's not taking Theresa's **** anymore. Fable IV he comes full force with an army of Crawlers, each with their own shadow army. The new hero has to become more powerful than the Hero of Oakvale to save Albion(<- Higher difficulty than any of the previous games), or even raise an army of heroes, maybe even revive the heroes guild. Perhaps Theresa revive the heroes guild, knowing Jack will return with an army to end all armies?
Anyways, that's my long and tiring opinion. Bottom line, I freaking love Jack of Blades, I'd love to see him again, wether it be in a sequel, prequel, or even just a remake. Just a mention of him gets me pumped up. Lionhead can do what they want, I kinda don't like favle nearly as much as I used to. Ever since Fable II really. The style of playing is what keeps me away, I liked the first fable best, I won't go into what I liked and disliked about the controls, that doesn't belong here. I'll finish off by saying, once again, this is my opinion/fantasy of a return of Jack. Lionhead can say he's dead forever, but they've lied/changed their minds before, they can do it again.