Blizzard's Micah Whipple, community manager for Diablo III, has clarified the game's item color schema in response to something a user posted.
Runes will be purple, Legendary items orange, Rare yellow, Magical items are blue, Normals are white and Junk items are gray.
Unlike Diablo II, sets will not be classified as their own item type. Legendary (or unique) items can be a part of a set and contain set bonuses.
Quest and lore items will be colored green.