Maybe I’m missing something obvious here, but how do I force a (all) palettes to be on top of other windows? In particular, on top of system dialogs - I am using a palette to enter my standard passwords. And yes, I know this is probably not a good idea …
You said it. 
Seriously though, you might want to take a look at 1Password for password management. It is very secure, easy to use, and sync across all your computers/devices via DropBox.
I’ve been using it for years now, and couldn’t do without it.
Palettes float above normal windows.
It is always a question of which layer they should be in. In this case, the password dialog is at a surprisingly forward layer, so it appears above palettes.
Understood. Any particular reason for single-action palettes not to be as much on top as possible? Or to make the on-topness a user setting?
They are configured to be NSFloatingWindowLevel, the same as other palettes.
Some other floating windows are configured to be NSStatusWindowLevel, which is a higher level, but it would not be appropriate for most palettes that stay on the screen. The argument could be made for single-action palettes to be at a higher level, but palettes can change their single-action-ness, so its probably better in general for them all to be the same level.
OK. I had at first set the palette to pop up at the cursor position, which almost always caused it to be obscured by the dialog. But it is fine to not do that and to move the palette to the side instead.