There is actually some science behind those bright colors!  Babies develop eyes, but not full sight in the womb - there isn't a lot to see in there.  There is quite a series of steps in their [visual development in the first year of baby's life][1].  While baby can see color from birth, distinguishing between different tones of color is pretty difficult so colors that contrast with each-other and their background are great for young kids.  This is way primary colors - red, blue and yellow are seen so much in BABY toys, as well as why you see patterns with black and white.

By 1.5, kids have pretty well established vision, but as Dan Beale shares, it is all about language development and learning sorting skills.  Blocks with colors and letters/numbers are GREAT for developing a child's ability to distinguish between different groups of things, label and describe what they are after, and connect skills involved with use of symbols (an important precursor to reading).  That is why alphabet blocks are such a classic standard.

However, paints from the past have been hazardous, so be mindful of the quality of your purchase.  I don't know what kind of [safety standards][2] coorporations in your area are held to, but you'll want to be sure that in the case of painted blocks, the paints used are safe for children (no lead based paints etc.)  Non-toxic and products made with environmental considerations are generally going to cross-over, but you'll also want to consider size of blocks etc. especially if your child is still mouthing toys so be sure whatever you buy meets high quality CHILD safety standards.  

I like mostly plain wooden blocks personally - they do have a nice feel to them, so if you are introducing colors and symbols in other aspects of the child's life it really is just a personal choice, and no paint (or sealer) is going to be the absolute safest way to go.

  [1]: http://www.babycenter.com/0_developmental-milestones-sight_6508.bc?page=1
  [2]: http://www.toyassociation.org/TIA/Priorities_Policy/safety/Priorities___Policy/Industry_Priorities/Product_Safety/Standards.aspx#.UtLMFfaeGWg