The answer is probably predictably simple. An editor of fiction should know how to write fiction and should, IMO, continually practice fiction writing, even if he doesn't seek publication. I don't think you need to be a great writer to edit great fiction. I have edited writing whose creation would have been beyond my capacity. But because I am attentive and conscientious; because I have a firm grasp of the fundamentals of storytelling; I can pretend to some ability to make a potentially great book into a great book.
A writer, a great writer, need not have any ability to edit whatsoever. He can get away with having only a loose grasp of the fundamentals of storytelling — or at least, be unconscious of his understanding of it — provided he has the support of an editor! He certainly need not know anymore than rudimentary punctuation and basic grammar. He can even be illiterate, if he knows how to work a dictaphone*.
It has been said in another place that there are writers seeking to supplement their income by editing who do not have the ability but assume that they do because they have met with some success as writers (or even if they haven't). This is probably true. But there are plenty of writers who are also skillful and effective editors. If I tend to think of Derek Prior as a writer rather than as an editor it is only because I have edited a couple of his books.
Being a good editor probably contributes something to the quality of his writing, but the two skills do not go hand in hand. Personally, I prefer editing to writing, and I think that no matter how good a writer I become, for the time being, I'm much better at editing.
There's never been an easier time to be a writer, if your definition of writer is as broad as mine**. My generation was the first to systematically use a computer in the office in place of a shorthand-typist. I can type much much faster than I talk, which is probably why my blog posts are often long and rambling, whereas when I talk… no, wait, when I talk it's long and rambling too.
Either way, the computer is an easier and faster way to write than a typewriter which is easier and faster than a biro (see footnote on 'dictaphone') which is easier and faster than a quill. Independent epublishing — I hope the rest of this sentence is obvious.
Whenever you take something out of the hands of the feudal elite; whenever you democratize something, you open the floodgates to diversity, mediocrity, rubbish and fraud. So I'm going to add something to my definition of a writer**. To be a writer you have to care about the quality of your work, and care about the experience of the reader.
This is turning into another one of those everybody needs an editor tirades. Sorry. I'll try to qualify it a little. Even if (like Derek) you are a good editor as well as a good writer, you can still benefit from the aid of an editor. Every writer can improve by working with an editor, even if only from time to time.
That sounds so pedestrian. That probably means it's truer than most of the pretentious pontification you find on my blog.
* 'Dictaphone' ought to be capitalized, and in a newspaper or magazine, or any non-fiction text, I would capitalize it; it was the name of a company that produced dictation machines. The same applies to 'hoover'. In direct speech in fiction, I would not normally capitalize these, as they have become generic terms through usage.
** I think you can call yourself a writer as soon as you've turned a profit from writing. Even if it's only one dollar.