There is a product called Kickstart out there that helps create site
definitions using VS.NET 2003. I haven't used it mainly because I like
the simplicity of creating site  definitions and templates in VS.

workspaces.gotdotnet.com/sharepointdevkickstart

I use XmlSpy for any editing  for two reasons:

1. The grid mode is just plain simple to edit the schemas and I can collapse sections I don’t care about (like BaseTypes that I can’t change anyways)

2. It validates my xml for me so if I do flip to text mode It’ll catch any stupid mistakes that I do

There are other (less pricey) tools  to do Xml editing that are out there as well. We just happen to have this in our environment.