No it's not on rails but it does clearly have navigation comprimises and I think it's going to be perceived as being essentially on rails judging by the comments you mention from the developers, such as:

"Controlling the horse with reins was the most natural method of navigation that Lionhead could come up with, Peter says. “When Microsoft came to us and said go do a core game using Kinect, the first thing we did was ask ourselves, what is important to a core game? And one of the big problems is navigation. We did lots of experimentation with pointing and pushing gestures and jogging on the spot – all utter shit. And so we had this breakthrough where we set you on a horse and cart. That makes sense if you’re sitting down.”

I've read most comments from Pete I believe and the vision formed is that to move you are essentially sitting in your wagon steering with reins via Kinect gestures.  It still sounds like anytime their is cobat you will be more or less fixed using gestures to cast spells.

In short, everything about Fable The Journey confirms that Kinect cannot replicate normal navigation for a title like Skyrim and that specific schemes/settings to use it for navigation are required.

TBH in the context of this thread I'd say the information about Fable confirms Kinect wouldn't work well in the manner opinioned by Bleszinki in the broader framework of Skkyrim.

Now, it would be great as an optional extra with maybe some magic competitions or whatever added to the game where you stand still and cast spells.

But in regular play in a game that expects you to move during combat it clearly wouldn't fit well.

Everyone here has had such creative comments about the Kinect and its potential.  I agree with some suggestion above, that a hybrid control scheme or a controller-free setup would work, as long as neither feels tacked-on or awkward.  Instead the setup should add to the experienceand be intuitive and natural. 

Cliff Bleszinki's comment also were pretty bang on, it seems that there's a lot of densiveness within the hardcore gaming community. But, i don't agree that its because gamers are afraid, just that they enjoy traditional controller or keyboard/mouse gaming.  A lot of people simply don't like the physical aspect of it.  Others find there is a lack of precision.  For some reason i think the unfamiliarity is a problem.  Whatever their reasons, I'm not sure the current selection of game titles is enough to change their mind.

However, As Cliff points out, Rise of Nightmares and Children of Eden come to mind as two games that do work well, and appeal to a more mature and sophisticated gamer audiance.  Rise of Nightmare's is a particular favorite of mine, because I think it's movement control scheme takes a step in the right direction.  Yet, games like these that appeal to to the hardcore gamer demographic, are few and far between.

So, instead of waiting, I decided to see if I could make Cliff Bleszinski's suggestion come true.  Using the Kinect and a Bluetooth headset, I tried to create a Skyrim where you could use your hand to cast a spell, or swing a sword.; a Skyrim where you could summon a spell with your voice, or perform Dragon Shouts.

It's not perfect, but it's a start.  Any suggestions and feedback would be appreciated.

Skyrim Kinect: 

Wait so he wants to play sorcery?

How do you move forward and back in the game so?

Maybe he should play a bit of Harry Potter ;)

but that will make kinect become 'you are the sub-controller'...

From what I gather and what we have been informed, for most of the game you are in a carraige being pulled a horse. So like you would in real life, you whip the rope tied to the horse to make the horse move forward and you can pull the rope to make the horse stop. Its actually a pretty clever and simple way to move. But unfortunately there will be some on-rails when you are off the carraige it seems, not too much is known though.

So you will spend most of your time with your hands held out as the carriage rocks forward following a rail...err i mean road, and then you could maybe get off the carriage once in a while and then engage in a scripted on-rails fight in which you can wave your hands to cast spells and such....

I just dont get it, what exactly is kinect supposed to add to Fable the Journey that could not be better accomplished by a controller or even the wiimote/move?

  I'm pretty sure thats the definition of on rails.

OT:  This would be really interesting, like if you wanted to cast a specific spell you would need to move your hands in the correct motion.  The problem is that you would essentially have to stop moving and looking in order to pull this off (as others have stated)

Assassins Creed: Revelations on rails confirmed!