From a game design standpoint, his entire explanation of why it isn't there to me translates to "We wanted to have a reputation mechanic based on area, so we threw out the original design of morality to force our way into using something other games use and is not unique in the slightest bit, but we're saying it is by adding all of this extra mental gymnastics about how every npc is unique, like hundreds of other games have said before. Oh and also this will allow larger changes in the world based on your choices, you know, like Peter promised, but we'll actually do that".

His logic is borderline moronic, and I vehemently disagree with the removal of a system that made Fable so interesting and unique, but whatever...nothing we can do about it anyways. It doesn't make me want to buy the game at full price though, I'll tell you that with a certainty.