Hi David,
OK, I find alternative 2 from http://wiki.eclipse.org/STP/Policy_editor_integration also more convenient for the user, although it requires more efforts.
Anyway I see two "must have" things for the XEF in alternative 2:
1. Your sample is absolutely right, but only for the case if editing alternative has only assertions inside.
But what about the case if editing alternative has both: sub-alternatives and assertions?
If XEF editor displays only assertions it will be confusing for the user, because he sees one structure in WTP-editor and the other in XEF-editor for the same alternative.
I think XEF should show also sub-alternatives, but do not allow to expose, edit and delete them (show grayed). So XEF editor should distinguish alternatives and assertions in input.