Lionhead have said that they are indeed working on some more DLC now that the Knothole Island DLC has been released. They have issued the following statement when asked if there would be more DLC for Fable II.
Yes, the team here in Guildford is working on some new content right now! More information will be shared in the coming weeks. Fable II is still doing really well, with 2.6 million sold its quickly becoming one of the best selling RPGs of Xbox 360. We had a lot of fun coming up with the achievements (and even won an award for them [Best Achievement Tile, Most Original Achievement) but it looks like our fans are enjoying them just as much; with more than 66,000,000 achievements unlocked to date! The easiest one to achieve turns out to be “The Whippersnapper” (with 2,800,000 people getting it) and the hardest one to add to your list is “The Dollcatcher” with only 61,037 gamers achieving this one (or a mere 1.9%). Shame you can’t auction the Hero Dolls off!
Just over 1,000,000 gamers chose “The Needs of The Few”, which just goes to show there is still quite a lot of love in this world…
Can comment on this here.