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Life of Brian
The "Gnomes are Great!" quest will first become available during the "Leaders and Followers" main storyline quest. In Brightwall Village there resides a strange little man named Brian. Brian adores garden gnomes, you see. He loves them so much that he has accumulated a vast collection of gnomes and even dresses up like a gnome himself. His best friend is a gnome named Jonathan, and Jonathan's birthday gift is long overdue to arrive in the village. Brian would like you to go to Mistpeak Valley to see if you can figure out what's delayed the delivery.
The golden trail of light will show you the way through Mistpeak Valley, towards the broken down carriage that was meant to make the delivery. Along the way you may encounter a few wolves, but they are easily dispatched with charged, targeted magic spells.
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Upon arrival you'll discover that the coach was assaulted by mercenaries. A couple of the thugs will be busy rifling through the cargo, though they will attack you as soon as your presence is known. Keep your distance from their melee attacks and counterattack with magic or your firearm. Once they are all dead, pick up the stone gargoyle and either fast travel or walk back to Brightwall Village.
Brian will request that you place the stone gargoyle on a pedestal in the middle of his army of gnomes. Players of Fable 2 will instantly recognize the gargoyle as it was a featured collectible in that title. Brian performs a ceremony that activates the gargoyle, an act that ultimately breathes life into his gnome companions. This wizardry can in no possible way have negative consequences, can it? Shrug that niggling feeling off for now and enjoy the 10 Guild Seals that are rewarded for completing this quest.
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Unsurprisingly, the actions taken during "Gnomes are Great!" do indeed have dire consequences. The "Gnomes are Evil!" quest is available a short time after the completion of "Gnomes are Great!". When you return to Brian, all that remains of his collection is the lone stone gargoyle on the pedestal. 50 gnomes have dispersed across Albion to spread fear and terror; all but one, that is. Brian informs you that a gnome named Lionel is still in his house and asks that you retrieve it.
When you enter Brian's home, Lionel will begin to taunt you from his perch on the ceiling. The only way to "retrieve" him is by shooting him down, seemingly destroying the gnome. When you return to Brian however, you'll find that Lionel has safely returned to his master, albeit in a foul mood. You now need to hunt down the remaining 49 gnomes. An in-depth walkthrough for locating all the gnomes can be found here: Fable 3: Gnome Walkthrough.
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There are rewards given by Brian for every set of 10 gnomes returned, ranging from a dog training book for your pooch to a unique weapon called "The Gnomewrecker". When all 50 gnomes have been found you'll be awarded the hefty sum of 40 Guild Seals to spend on the Road to Rule.
All screenshots/references for the Fable 3: Gnomes are Great! and Gnomes are Evil! Walkthrough from Lionhead Studios' Fable 3 and author's own experience.