Welcome to Gaia! ::

Can't think of anything medieval offhand. How about a little further forward? Like "Neal Stephenson’s epic Baroque Cycle, spins a dizzying tale of science and adventure on the colorful canvas of late seventeenth- and early eighteenth-century Christendom." I read the first one, Quicksilver, and it has a fantasy feel to it. Jonathan Strange & Mr Norrell has a lot of historical background. Main action takes place around the year 1800, but there are lots of reference to earlier periods, too.
I'll try to think of something more to your specs.

This book immediately came to mind.

I read it years ago and still remember more than half of the plot which says something about it's quality. I was in awe of the plot and the woman who came to be the villain. Astounding.

It's set in the 12th century and I think that falls into the medieval times.

Well, I can suggest some stories from medieval England, although it seems like you are looking for contemporary novels set in a medieval backdrop. Still, here are some if you are interested:

La Morte D'Arthur - Sir Thomas Malory (this is the original written work from which most modern adaptations take their inspiration for the King Arthur story- "The Mists of Avalon" as mentioned previously actually follows it narratively to a tee while taking a very different viewpoint of the story.)

Sir Orfeo - (a narrative poem involving a knight and faerie)

Lanval- Marie deFrance (yet another fine narrative poem involving a knight and faerie)

Sir Gawain and the Green Knight - (a story concurrent with the tale of Arthur. About knighthood, with some fine supernatural happenings, and Tolkien actually has a great translation of it.)

So maybe those will strike your fancy. I feel it's always worth something to learn the basic origins of some of our favorite modern genres.

I've read those books and I agree, they are good, especially Dealing With Dragons : )

Well, yes, it's true in the sense that it in Malory's Le Morte D'arthur Mordred is the result of incest, and this is the basis for the Mists of Avalon. There is in fact a running prophecy throughout Le Morte D'arthur that Arthur's son will destroy him, and the reason Mordred is fated to commit that act is because of the perverse nature of his own origins.

Some very early accounts make him as the son of Morgause and Lot of Orkney, but I think Monmouth (a writer who pre-dates Malory) is the first version in which he is the result of incest.

If you want to read fantasy about the 'historical Arthur'...

in that same period is Michae; Moorcock's The War Hound and the World's Pain and it's sequel, City of the Autumn Stars.

and of course, as Wintertowne says, Jonathan Strange and Mr. Norrell is outstanding.