First, the easy question: the GPO Editor gets opened when you edit a GPO because...that's the tool that is used to edit GPOs. :)
Now the rest. You can see which policy takes precedence in the Group Policy Management Console. In this case, both policies should be applied at the domain level (since that's the only place you can specify a password policy in 2003), so click on the domain name in the left pane of the console. Then click on the Group Policy Inheritance tab in the right pane. Policies higher in the list take precedence over those lower in the list. (There are exceptions to this rule, such as when a policy is given the Enforced/No Override setting, but that's not likely true in your case.)
