M78 is a reflection nebula discovered by Pierre Mechain in early 1780. Charles Messier added it to his catalog on December 17, 1780. It resides in, and is surrounged by, the Orion Molecular Cloud Complex. This large cloud of gas and dust emcompassing the constellation Orion, is about 1,600 light years distant. Reflection nebulae, such as M78, shine in the reflected and scattered light of bright blue (early B-type) stars. This gives the nebula its characteristic blue color and is essentially the same phenomena that produces the blue color of our sky.
1http://www.messier.seds.org/m/m078.html