[Boromir88]

Nikkolas, first let me welcome you to the Downs, I hope you enjoy it.

Does anyone happen to have the passage (I know I've read it) where Gandalf comments on a possible confrontation with the Witch-King? I believe he was rather grim about it and not at all confident of absolute victory.

I believe you are thinking of when he is speaking with Denethor:

"Then, Mithrandir, you had a foe to match you," said Denethor. "For myself, I have long known who is the chief captain of the hosts of the Dark Tower. Is this all that you have returned to say? Or can it be that you have withdrawn because you are overmatched?"
Pippin trembled, fearing that Gandalf would be stung to sudden wrath but his fear was needless. "It might be so," Gandalf answered softly. "But our trial of strength is not yet come. And if words spoken of old be true, not by the hand of man shall he fall, and hidden from the Wise is the doom that awaits him....
"Nay, I came rather to guard the hurt men that can yet be healed,..."~The Siege of Gondor

I don't sense any grimness or, nerves in Gandalf. In typical Denethor attitude, he mocks Gandalf for returning. Gandalf answers him with a soft "It might be so," but I take this to not mean Gandalf was in any way scared about facing the Witch-King. Gandalf's soft reply serves to contradict Pippin's expectation. Pippin expects Gandalf to lash out in wrath, but he doesn't, he answers softly. Then Gandalf goes on to flat out tell Denethor, no he didn't leave because he was overmatched... "Nay, I came rather to guard the hurt men that can yet be healed."

Plus, I believe the actual confrontation (if that's what you would want to call it) to be more revealing than anything Gandalf tells Denethor:

...In rode the Lord of the Nazgul, under the archway that no enemy ever yet had passed, and all fled before his face.
All save one. There waiting, silent and still in the space before the Gate, sat Gandalf upon Shadowfax...
"You cannot enter here," said Gandalf, and the huge shadow halted....~ibid

After the Witch-King reveals who he really is, throws a couple of insults at Gandalf, does some fancy tricks, after all that:

Gandalf did not move

I think that should answer Gandalf's thoughts on the Witch-King, he might not have been able to beat him (I'll get to that in a bit) but he wasn't afraid of him. Let's not forget Gandalf already took on the Witch-King (and the other 8 Nazgul!) on Weathertop, back in FOTR.

As far as how powerful the Witch-King was...well that's a little harder. His primary weapon (a long with the rest of the Nazgul) was fear. If you weren't afraid of him, he wasn't completely useless, but he was definitely weakened. The Nazgul weren't master swordsman secret police executioners of Sauron. They were most powerful when they were all gathered together, under their captain, and at night, that is when they could inspire the most fear.

However, that fear they inspire, should not be underestimated, because it is a very powerful weapon (and does make them Sauron's most dangerous servants)...especially the captain:

Night was waning on the twenty-second day of September when drawing together again they came to Sarn Ford and the southernmost borders of the Shire. They found them guarded, for the Rangers barred their way. But this was a task beyond the power of the Dunedain; and maybe it would still have proved so even if their captain, Aragorn, had been with them. But he was away to the north, upon the East Road near Bree; and the hearts even of the Dunedain misgave them. Some fled northwards, hoping to bear news to Aragorn; but they were pursued and slain or driven away into the wild. Some still dared to bar the ford, and held it while day lasted, but at night the Lord of Morgul swept them away, and the Black Riders passed into the Shire,...~Unfinished Tales: The Hunt for the Ring

A couple things about this, it seems like the Dunedain were slaughtered, and the same outcome might have happened even had Aragorn been with them. The thing to note, however, is the importance of "night" to the Nazgul. The rangers that remained lasted through the day, but once night hit, it sounds like the Witch-King manhandled them.

So, to me, without question, Gandalf is far more powerful than the Witch-King. The Witch-King could not match up to Gandalf. With that being said, that doesn't necessarily mean Gandalf could have defeated the WK, because not everything can be defeated by shear force alone. There is the certain prophecy saying no man would kill him. However, there is a difference between "would not" and "could not."

However one wants to interpret the Witch-King leaving the confrontation with Gandalf at the gates, is up to them. I say the WK realized he was overmatched and left to take care of other business. The WK was arrogant, but not stupid, he knew when he was beaten and when he was, he had a tendancy to flee (as Morthoron notes when he twice fled from Glorfindel). If someone wants to argue the WK left, because Rohan arrived, and like the good commander he was, he had to take care of the more important issue. That is there is suddenly a rather large army that has taken him by surprise, then that argument can be reasonably made. (I would like to get in the last word, however, who was instrumental in Rohan arriving to Gondor's aid? That's right, Gandalf. So not only is Gandalf more powerful, but he proves to be the better commander. )