I've asked myself this question many times. On every forum I have ever been a member of, there's always been at least one mod that does NOT deserve the moderating position.
I have been a mod, and still am(though that forum really doesn't actually have mods or disciplinary actions), and when conflicts arise, I've always been fair, precise, and reasonable in the way I deal with them. Much of the time, often getting unbiased opinions from others to insure my thoughts of the situation. I think for a person to be a mod, the number one thing is knowing how to deal with others, and part of that is knowing how to keep your cool and not get angry, while still issuing a fair and reasonable warning or punishment. Unfortunately, every forum I've been a member of there's always been one mod that does not possess these qualities to be a good moderator.
Which makes me even more confused and bewildered on how some of these people are chosen as mods!
So, sorry.. I guess I didn't answer your question at all!