Disable Password Requirements in Windows Server 2003 Domains

Go to Administrative tools folder.
Double-click on the Default Domain Security Policy icon.
Note: If for any reason you don't see that icon you can still edit the Default Domain Group Policy from the AD Users and Computers snap-in, or from a GPMC window (if you have GPMC installed - Download GPMC).
Navigate to Security Settings > Account Policies > Password Policy.
Right-click on the Minimum Password Length option in the right pane and select Properties.

Keep the V on the Define Setting selected! Do not remove the V from that check-box. Removing the V will cause the GPO to revert to the default setting, which is what we are trying to remove in the first place.
Enter 0 (zero) for the number of minimum characters required in a password.

Now double-click on the Passwords Must Meet Complexity Requirements option in the right pane.

Again, do not remove the V from that check-box. Instead, select Disabled.

Click OK all the way out and close the GPO window.
In order to refresh the policy type the following command in a CMD window and click ENTER:

gpupdate /force

Done.