I've been waiting for the combat debate and it looks like I should have checked back sooner cuz now I'm late to the party. In Fable 3 I played my first two playthroughs using hammers first then swords, in my third and current playthrough I'm using guns (I suppose I should try a purely magic playthrough). Anyway, If I had to rate combat it would go Range>Magic>Melee.
Since I know melee best I'll elaborate on the issues it faces.
Enemy AI - In the early stages of the game, melee has little to worry about, you could jump into the middle of a mob and not fear getting crushed because you'd usually only be attacked by one enemy at a time and they weren't yet using guns. This is quickly rectified with the introduction of second tier enemies (If I use hollowmen as an example, the regular skeletons are the easiest, they won't attack more than one at a time, they won't block and go down quickly. The red shirts take more damage to down but are ultimately the same. The helmet/armor wearing Skeletons introduce the ability to block, cast magic, and attack regardless AND these are introduced before you exit the reliquary. And the Big ones can summon others and weave magic) Suddenly, it is no longer safe to charge into battle with a melee weapon, as you will either spend a lot of time blocking or a lot of time dodge rolling. In fable 2 I remember fighting mercs for a long time before I met the ones capable of blocking but in Fable 3 all mercs can block, its only a matter of which one throws up a block quicker. The sandfuries greatly improved the Highwaymen AI for blocking and dodging but lessened the sting of their attacks considerably making them more of an annoyance than anything. Generally, at a certain point all enemies have to be 'tricked' into falling into your flourish. There is a point in the game where the enemies begin to step backwards and will wait out your flourish, this is very effective as the limited range severely handicaps melee combat.
Flourishes - Since it is most opportune to engage an enemy with quick strikes till they block (rooting them in place while they await your next quick attack) then charge a flourish and ground finish them, it needs to be said that there are multiple stages of flourishes. If you begin to charge a flourish and release too soon you will get a weak flourish, it will hit multiple enemies but will only serve as a knockback and not a flooring and it can be blocked. The second stage is right as the controller rumbles which takes at least 2 seconds to charge and can break blocks and ground enemies. Finally, is the big explosive flourishes which take an additional second to charge, make your morality lines bright and generally come with a dynamic camera moment and does significant damage to the enemy, it also seems to leave the morality lines lingering longer though I have no idea what that could mean. After a while, with flourishes you begin to learn there is a time and a place for them. You can potentially always use flourishes, however, any attack made against you instantly knocks you out of it, you can't dodge roll out of it (you are required to go to block first) and either due to a glitch or some sort of odd design, dropping out of block now forces an attack in the direction your facing (either that or my controller is messed up too...) either way, not very effective in escaping damage (like aoe spells).
Damage - In Fable 2, I recall entering the flourish by charging the button and releasing, during a flourish all damage was nullified. Not so in Fable 3, and the enemies seem to know it. Even while one on one, Flourishes can still force you to take damage if your opponent swings at the same time you do. Even worse when surrounded by enemies, they can easily drop your health down to zip during a flourish because there's nothing you can do about it. This makes you very selective about the use of flourishes in combat, or fights would be required to last considerably longer due to an abuse of dodge rolling in order to get into a position that allows you to get off a flourish, both uninterrupted and without being attacked during it. And with enemy AI's being improved in this area, they now make liberal use of the run up and attack move closing the distance quickly and putting you in harms way sooner.
Glitched Block - The glitched block and the sliding flourish are very annoying, sometimes if on a hill and sometimes for no reason at all, you will suddenly notice you can't block. You can hold down the button but your hero will not put up the block. You can try and do it several times and the most he'll do is swing quick strikes out. The problem with this is, usually theres a reason you block. Like a pack of balverines for instance, by far the most important to block against and if one of your blocks fail it could mean the difference between life and death. Especially in a crowd. I in fact, challenge anyone who's in late game stages to fight several packs of Balverines using only melee and no potions, its not impossible, its not overly difficult but you will notice how easy making one small mistake can put you in the red. And I'm the type of gamer that took fable 2 and said 'how can I make this game harder' and played through using my starter equipment, melee only, no potions or food, no leveling up except to dodge roll/counters and no deaths. I can tell you, Balvarines got a big boost this go around, they now dodge more often and disappear more often and they no longer just try to go behind you they now jump all over the place. The sliding flourish is by far the most entertaining but ultimately the most painful as you will start to charge up a flourish and suddenly slide as you charge in a new direction, sometimes it is far away from any enemies and sometimes its into a pack of enemies starting their attack. Enjoy!
There's also one more, which is the glitched flourish where your attack will pass through the enemies doing absolutely nothing to them. Yeah, good times.
Yes, Melee has many advantages in close range combat, can hit more than two enemies (but magic accomplishes this and guns can accomplish this it just seems to take a bit of lining up the shot), it has frequent finishers including the uber ground finisher (though I would like to point out the targeting AI majorly screws up ground finishers...if you fight more than one opponent you have to perform many acrobatic feats to remain targetting the downed opponent while you attempt the ground finisher, and it requires proper placement in order to use it otherwise you swipe at thin air) and its flourishes have the ability to ground enemies, all very useful and cool. But I will say I spent my first playthrough chugging potions and my second playthrough I spent dodge rolling in the red so my hero health regen would kick in. Third playthrough, I haven't even seen the message 'you seem to be taking quite a few hits, try pressing x to block or a and a direction to dodge roll' (or something like that).
Guns have the ability to roll out of a flourish. You can go ahead and put the OP sign on that because that's pretty much all you need to know. I don't know about you guys but I'd say over powered is more than just 'does lots of damage' its also stays alive longer and guns definitely stay alive the longest. They do however have the pitfall of the hobbe dodge and possibly the balverine dodge but ultimately these are just nuisances rather than actual limitations.
Magic can probably use the aforementioned vortex/charged spell to decimate the enemies but I'm pretty sure bigger enemies are much harder for magic users than gun users and crowds over 3 or 4 will leave a few enemies unaffected by a lvl 1 vortex although...charging up a lvl 2 vortex at max level takes what, less than half a second?
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I've wanted to mention this improvement if it hasn't been discussed...can we be allowed to enter redecorate mode, select an item to swap and then simply push a shoulder button or a thumbstick to scroll over to the next closest changeable piece? That would be nice.