I remember reading this short story ~15 years ago. What I remember:
Back in the 90's, Martin Greenberg published a LOT of themed anthologies, and I think that this was in one of them. I think it was a new copy of a book at least. Somewhere in the area of 1997-2001 is the best estimate I can give. But it may have been published previously and either reprinted or simply sat on the bookstore shelf for a long time.
The short story was, according to the preface paragraph, the first of a series by the author.
The story was based on Bob Dylan's song "All Along the Watchtower." The plot roughly follows the things that happen in the song.
The story takes place from two viewpoints, the court jester and a thief.
The thief has a magical goblet which overflows endlessly with wine. The plan is to present it to the king and get him and everyone around him hopelessly drunk, followed by robbing him blind.
Meanwhile, the jester is in love with the princess, who is completely blind to his affections, eventually dismissing him as not being capable of understanding true love the way she does (because he's a peasant).
Things don't go quite according to plan, and the thief and the disillusioned jester end up teaming up and getting away, riding off into the distance. As this was the first in a series, it feels very Fafhrd and the Grey Mouser-esque.
- For whatever reason, I seem to recall the author being referred to in the preface paragraph as a woman.
Hope that's enough. I remember really enjoying the story, and I'd love to find it again and the other stories in the series.