The "Blues" were called "Oxford Blues" in the time of William III, to differentiate them from his "Dutch Horseguard," who also wore blue uniforms.
The real differentiation between the Lifeguards and the Blues was to do with their personnel. Prior to their reorganisation (1790s - I think) the rank and file of the troops of Lifeguards were "gentlemen", those of the Blues were the same as other cavalry regiments (notwithstanding the Blues eminence). The 18th century Lifeguard stood in the line of military units which stretched back to the "Gentlemen Pensioners" (knightly men-at-arms) of Henry VIII, and further back to the "Knights of the Household of the King" in Medieval times. The rationale behind this being that the person of the king should be guarded by a guard of nobles and gentlemen, it was a status symbol.
However, at the end of the 18th century it seems to have been realised that the troops of Lifeguards were: (a) too small in numbers to be militarily effective, (b) with each trooper getting officer-like pay and perquisites, horrendously expensive.
With little increase in cost the troops were disbanded (most rankers were pensioned off)and the troops made up to two full-sized regiments. The two regiments of Lifeguards thus inherited the "full household" status of the previous troops, and a little of their "gentlemanly" standing. The Blues not having either of these "advantages."