1. Fable 3
2. Fable (TLC)
3. Fable 2
I've just finished playing Fable 3 and although they've dumbed down some stuff (though really not that much from 2 to 3) I have to say it is the best one because of the story and especially the last part, where you get to rule Albion. The choices in that part of the game are by far the most interesting in the series- I would have liked it to be longer, because it was too short!
The Fable series has never been deep or complex; not in terms of lvling, combat, simulation of life or even in it's choices or story (despite Molyneux's effort to convince us that it really is very deep - like the new magic system LOL!!!), but in Fable 3 I think they moved forward with choices and story (and isn't that what the series is all about?).
Fable 1 was quite enjoyable and had an acceptable story (you actually felt like a hero) and if they could bring back the skills from this game it would be a big improvement to the series.
Fable 2 had a lousy story that could have been good if the developers had invested some more time in it - the expression wheel was nice and should have crossed over to Fable 3. The side quests of Fable 2 however are, for the most part, probably the most boring quests in the series - I felt nothing, nothing I say!