The "blue lines" are quote levels previously added by someone else's email program, usually Outlook Express on Windows. Using the "Reduce Quote Level" command is ineffectual on these quote lines in Apple Mail—and it drives me crazy. Whether you choose Format > Quote Level > Decrease, or use the command-option-' keyboard shortcut, neither works to remove the blue line quote level marks. It doesn't matter how you select the text after you hit "Forward", Apple Mail simply doesn't recognize the quotes to be able to remove them.
The best way I've found to clean the quote levels up before forwarding an email on to someone else is to choose Format > Make Plain Text after you've hit "Forward". Unfortunately this removes all font and text colors, but at least it removes all those annoying quote-level markers on the left margin. You can switch back to "Make Rich Text" after you've made it plain text and stripped away all the quote levels and formatting, and reapply the fonts/colors if you really feel the need.
Apple Mail's inability to recognize quote levels from other email clients has frustrated me for years. Microsoft's Entourage was fabulous at cleaning up emails that have begun to fall apart after multiple forwards. It could easily strip out the quote level markers and also easily rewrap broken paragraphs. Apple's Mail has never had such a robust clean-up menu. That is about the only thing about Entourage that I really do miss once I decided to switch to Apple's Mail.
I guess 99.9% of Apple's Mail users just don't care about what kind of mess they're forwarding on to other people, or Apple would have (by now) given us some tools for cleaning up messy emails. Nonetheless, anyone who finds this thread because they're similarly frustrated about wanting to remove quote levels should send Apple Feedback a note. There doesn't appear to be a specific web page for Mail feedback, so send it to the Mac OS X feedback page here:
http://www.apple.com/feedback/macosx.html
--MacBrian