  We present photometry and spectroscopy of the afterglow of GRB 030323. VLT
spectra of the afterglow show damped Lya (DLA) absorption and low- and
high-ionization lines at a redshift z=3.3718+-0.0005. The inferred neutral
hydrogen column density, log N(HI)=21.90+-0.07, is larger than any (GRB- or
QSO-) DLA HI column density inferred directly from Lya in absorption. From the
afterglow photometry, we derive a conservative upper limit to the host-galaxy
extinction: A(V)<0.5 mag. The iron abundance is [Fe/H]=-1.47+-0.11, while the
metallicity of the gas as measured from sulphur is [S/H]=-1.26+-0.20. We derive
an upper limit on the H2 molecular fraction of 2N(H2)/(2N(H2)+N(HI))<~10^-6. In
the Lya trough, a Lya emission line is detected, which corresponds to a
star-formation rate (not corrected for dust extinction) of roughly 1 Msun per
year. All these results are consistent with the host galaxy of GRB 030323
consisting of a low metallicity gas with a low dust content. We detect
fine-structure lines of silicon, SiII*, which have never been clearly detected
in QSO-DLAs; this suggests that these lines are produced in the vicinity of the
GRB explosion site. Under the assumption that these fine-structure levels are
populated by particle collisions, we estimate the HI volume density to be
n_HI=100-10000 cm^-3. HST/ACS imaging 4 months after the burst shows an
extended AB(F606W)=28.0+-0.3 mag object at a distance of 0.14" (1kpc) from the
early afterglow location, which presumably is the host galaxy of GRB 030323.
