How to edit default email templates in Magento?

To change default email template, we need to edit html files in app\locale\en_US\template\email

If you are using other languages than en_US then open corresponding folder to make changes.

You also need to edit few more files, in order to get rid of these type of things:

{{layout handle="sales_email_order_items" order=$order}} 

so, make changes of files in app\design\frontend\your_theme\default\template\email otherwise you would see default email template.