I got the frame sanded down and ready to prime. I used a product called "Peel Off" to get the awkward places on the frame where I couldn't reach, i.e. tight spots, and some of the metal turned a bluish color.

Should I be worried about this? Most of it occurred in seam areas so I'm worried that it has weakened the frame's strength.

Give it a good washing....

I doubt any surface treatment that lasted a few seconds to minutes at room temperature would seep in deep enough in steel to compromise its strength.  Generally, when steel is being surface treated, it will be heated up to hundreds of degrees, and exposed to some kind of gas for long periods of time.  And that only produces a surface treatment.  I bet you're fine!

Anything wrong w/ powdercoating it ? I'd think it couldn't cost much more than the materials one would buy to clean, prep and paint it.

Ironically, I just ordered a DIY powder coat system yesterday off ebay.
As if I don't have enough to play w/ already, but I've been curious how well these work. And the only coating place here has an attitude like they know it, and I don't like it !