Disable password complexity rule in Active Directory

Where do I go to disable the password complexity policy for the domain?

I've logged onto the domain controller (Windows Server 2008) and found the option in local policies which is of course locked from any changes. However I can't find the same sort of policies in the group policy manager. Which nodes do I have to expand out to find it?

You're looking to change the password complexity setting you found in the "Default Domain Policy", not the local group policy. Then do a "gpupdate" and you'll see the change take effect.

Open Group Policy Management Console (Start / Run / GPMC.MSC), open the Domain, and right-click and Edit the "Default Domain Policy". Then dig into the "Computer Configuration", "Windows Settings", "Security Settings", "Account Policies", and modify the password complexity requirements setting.

Editing the "Default Domain Policy" is definitely a quick-and-dirty thing to do. The better thing to do, once you get a better handle on group policy management, would be to return the default back to default settings and make a new GPO overriding the default with the settings you want. To get you by fast, though, editing the default isn't going to hurt you.

I'd also like to point out that in a Windows Server 2008 domain, you can have multiple password policies applied to different OUs; with previous versions of AD, you could only have a single global password policy for each domain.