I have a number of files and folders that are highlighted in blue.
Why is this and is it a problem?

By design, WinXP compresses files that do not get used frequently,
and, if you've left the default settings intact, displays those files
in blue.

If you wish to change this behavior, in Windows Explorer, click
Tools > Folder Options > View > Advanced settings: Show encrypted or
compressed NTFS files in color.