Bingowings: You're definitely right about the connection of the blue lightsabers with Bilbo's Sting--and Vader's red blade with the Balrog's sword--but that was added in post-production, when the blades were given a rotoscoped glow.
In the ANH first draft script, Lucas describes protagonist Annikin Starkiller's "laser sword" as glowing red in color. No other colors are ever described, so I assume it was going to be like in the Marvel ANH comic, where every lightsaber blade is red.
The word "lightsaber" doesn't appear until the third draft; until then they're just called "laser swords." Presumably the new coinage was borrowed from Edmond Hamilton's short story Kaldar, World of Antares (reprinted in an Ace paperback collection, Swordsmen in the Sky, in 1965).
The story is a fairly cliche ripoff of the Barsoom series, but it does feature a very interesting weapon, the "lightsword." This is actually a physical sword with a real blade, but when the user grips the hilt, the blade glows with a brilliant white light and is charged with a deadly energy. Any physical contact at all with the charged blade basically means instant death.
Interestingly, though, the header illustration in Swordsmen in the Sky depicts the lightsword much more as a SW-style laser blade. I'd guess Lucas encountered this story between writing the second and third drafts--so between January and August 1975?
During the actual filming of ANH, the crew attempted to realize the lightsabers' glow in-camera using specially-treated electric sticks. Of course, this failed miserably. However, the idea at that point was that all lightsabers glowed white, just like Hamilton's "lightswords." So Ben and Vader would both have white blades during their duel. The different lightsaber colors--blue for good guys, red for bad--were only conceived in post-production, when Lucas realized he had to improve on the mediocre original saber effects.
There are some very early lightsaber effects tests, from pre-production on ANH, which can be glimpsed on one of the Blu-Ray documentaries. They show tests of how to create "in-camera" effects, for blades of three colors: blue, red, and white. Notably, though, there are three test sequences, in all of which the two blades being used by the "combatants" have the same color.
Actually, Ralph McQuarrie's production paintings do show lightsabers of different colors; but since he painted Vader with a blue blade and Deak Starkiller wielding a yellow one, his color choices were definitely at odds with what Lucas would later choose.
zombie: Hi there! Long time no see. (BTW, you really need to update that "Luke's severed hand" article on your site--The Making of ESB added some relevant new info. I'll try and dig up some stuff I've written on it since when I have the time.)