Well, I bit the bullet and asked the guy what the heck he meant (imagine that). Turns out he was referring to the oft-quoted teach a man to fish proverb.
He also clarified that this is not a common expression, just an idiosyncratic reference he invented and uttered spontaneously.
Using Ngram I did find several instances of this phrase used in such a way. Here is one example:
But Louis XIV. still lives, recovers from his lengthened swoon and inquires for Madame de Maintenon, for whom a courier is instantly despatched. The news, the unwelcome news, swiftly reaches the Palais Royal. Immediately the worshippers of the rising sun fly back to pay homage to the setting luminary; whom, in their precipitancy, when but obscured by a passing cloud, they believed already sunk below the horizon.
The Old Régime: Courts, Salons, and Theatres, Volume 1, Lady Catherine Charlotte Jackson, 1880
It seemed to be used most often in a political context to refer, I think, to those eager to seek favor from any new person in power.
Originally, Worshippers of the Rising Sun appears to refer to a Hindu sect and there may be a story there that led to this use of the phrase. I'll keep working on it. Great question.
Edit:
I found a definition that confirms my guess, but still no background:
Idiom: Worshipping the rising sun
Meaning: To be with the successful.
Idiom: To worship the rising sun
Meaning: To respect a man who is coming in power
TargetStudy.com
This reference is from an Indian higher education website, however, so I still suspect there is a story behind the phrase involving Hinduism.
Edit 6/16/11
As @Alain points out in his comment, my example reference above is not the best because Louis XIV came to be known as "The Sun King." See @Tragicomic's answer for uses of the phrase in other contexts.
Best Answer
It sounds to me like he has misquoted 'Light the blue touch-paper', as you suspected. There is no such idiom as 'touch the blue paper'. Nobody's perfect!