That's right. Fable 2 has some rampant TG elements. Been discussing them ingame with Lucky.
One thing you can try multiple times is the Wheel of Torture. One of the "prizes" for your victim(s) is a gender swap.
Here's a really crappy youtube video of the action.
Also, after you finish the game you can get a potion that changes the gender of your hero. Mine would have turned out like the hero in the following vid, ugly as all getout, so I didn't do it. Yeah, I'm shallow.
Roll that not so beautiful footage!