The Judge looks for relaxation in the horse. Ease into transitions. Rhythm, hores and rider working together.
Ask Spyder, she Judges Dressage and went pretty high up - she'd be far more knowledgeable about this than I :)
To the OP.
I have judged a ton of Intro and Pony Club which would be about the level you are considering.
So in part your friends are correct but like many things they did not give you the full information.
As MIE stated the head position starts from the hind quarters and is a consequence of a driving seat into knowing hands.
As far as what a judge would do at this level here is what I look for.
First...Forward with impulsion that is NOT out of control but carrying the horse forward in a balanced manner
Second...ACCURACY. This becomes more important at the lower levels for two reasons...first it provides the basis of good habits for later levels and there is not a great deal to see/judge at this level for the judge ( such as the multiple movements that occur later on).
Three...... clean transitions. This shows the overall balance of the horse and the riders ability in balance and control.
NOW if you CAN do all of the above with the overall position of the horse in a "form" that is neither over, against or behind the bit or counter bent then bonus marks. Bonus marks are not extra marks but rather just the difference between a 5,6 or 7 score.