What is this - Oz week or something? (Speaking of which, don't forget to have a little drink for us on 1 Jan - we're celebrating 100 years since Federation - the amalgamation of states to form the Commonwealth of Australia.)

I can confirm that Bluey is indeed a nickname for a redheaded man, although you rarely hear it now, so perhaps this should be cross-linked to stales's thread about Australian sayings that are dying out. Unfortunately, whilst *lists of Aussie slang words and their meaning abound on the Internet, this is the closest I've found to an explanation of its origin, and frankly I don't buy the colour-blindness explanation:
http://www.shu.ac.uk/web-admin/phrases/bulletin_board/4/messages/1276.html

I think Bluey is just an example of a perverse sense of humour in using an opposite word. But I'd love someone to contribute more on the origin.

I can tell you that this expression was the inspiration for the winning entry in a competition to find a name for Richard Branson's Virgin Airlines' fledgling Australian operation. "Virgin Blue" now appears in large letters on all their bright red planes down here. Virgin On the Ridiculous, some say.