You might also consider setting the OS back to its default security settings via an elevated command prompt and this code:
Code:
secedit /configure /cfg %windir%\inf\defltbase.inf /db defltbase.sdb /verbose
I tested the setting that your image showed by enabling the password complexity rule and then I used the code above. That code set the password complexity policy back to the default state of disabled.
There maybe a setting that prevents even local admins from changing the local security policies - such a setting might also prevent the code above from resetting the OS back to its defaults. Let us know how it goes for you,