I like Josie a lot, though there are many Peaks characters I like better (a testament to how many great characters this show has). The whole Josie/Catherine/Andrew/Echart plotline runs throughout the series and stays quite consistently good throughout the series (though there are odd touches here and there: Josie becoming Catherine's maid, finale of episode 23 (blech), Catherine's "tuna fish" scene) She's really complex, and it's sad how she is haunted by her past deeds. I feel like she had to make her way however she could in China. After Andrew's murder, she slowly came to realize that she could be a better person; the person Harry saw. Part of her wanted to be this person, and the other wanted her money. She was swamped with indecision and Catherine's blackmail. Finally her past caught up with her. I think episode 23 is really charged with this inevitable fate hanging over her, as the walls slowly close in. This would have been the best episode since 15 and before 29... if it weren't for the horrid ending. It totally cheats us out of a satisfying climax, and makes the whole episode worse. A more satisfying conclusion (I think) would be if Harry tried to come closer to Josie, saying that he would have to arrest her (or something). Josie pulls out a gun, and shoots, but misses. She prepares to shoot again, but Coop shoots her (paying back the favor), and kills her. Harry would then be angry at Coop for shooting her for a while. That would be emotional and satisfying... not some nonsense about her dying of fright and BOB turning her into a doorknob... or whatever.
As to why she shot Coop... probably 'cause the writers didn't have anyone in mind and had to answer this one. Josie was suspicious and unstable... she was a likely candidate. But to explain it, it was probably because she figured Coop would figure out her part in burning the mill (though she seems to have been wrong about that, though he found out about her later), and tip off Harry, who she could trick into believing her. Coop's influence on him was dangerous to Josie.
That god damn trailer's more popular than Uncle's Day in a whorehouse!