A quick note of clarification: there is also a "free" Knothole Island download available, but it's not what you think. The free download will only allow players without the DLC to play co-op with players that have purchased it. And no, you can't download the free DLC and play the new content with someone who purchased the premium version. You can still play co-op with someone who has it, but you'll have to purchase the premium version in order to visit Knothole Island together.
Quickie addendum: It looks like the free DLC does come with some free goodies. You can get them from Gordon the submariner (no, really) in the Bowerstone Market docks.
Gallery: Fable 2 - Knothole Island DLC