At least I was able to do it when I was playing with my girlfriend in the same room. I don't know how online co-op works. Here's what we had to do:

1. Both of us had to start a game (get to the point when you're an adult) individually on our separate xbox live accounts and save the game.
2. Whoever was going to be the Hero logs in as Player1 on their game on their account.
3. The other person logs in, and on the co-op screen selects a saved game profile. Select the other xbox account and the other saved game.
4. Make sure the Player1 sets the XP to be split 50/50.

As you play, Player2 will get XP and be able to get new skills and magic and whatnot. It'll be saved each time you log out.

Unfortunately, the game is still obviously a single player game with the second player feeling like an afterthought. And you still can't use gold to buy weapons or armor or anything.

Hope this helps.