To change these settings is not intuative, however this is what I found:To turn password complexity off in Windows 2008 Server or change other grayed out security options, follow these steps:
(1) Run gpmc.msc (Group Policy Management)
(2) Expand your Domain
(3) Go to Group and select Default
(4) Right click on Default Domain Policy or Default Domain Controllers Policy and choose Edit
(5) In the new window which opens expand computer Configuration->policies->windows settings->security settings->account policies->password policies
(6) Make your edits to the keys below:
There must be an easier way, which I am problaby missing !