When creating a new user in Active Directory Users and Computers on W2K server, a password has to be entered for the new user. Is it required that the password contain a capital, lowercase, and number, besides being set to the number of characters as specified by the Administrator in the Group Policies? Is it possible for the password to be, for instance, simply an eight letter password, such as 'password'?

Yes, it is possible but depends on how you have things set. By default, you are able to have simple passwords. You can even set it to allow blank passwords if you want. If you use group policy to enable the setting for "password must meet complexity requirements", then your passwords will need to be upper and lower case and contain a special character. It will also depend on what you have set for minimum password length.