Highlight elements is one of my more popular plugins. I have just released a new version of this plugin. This release makes it compatible with the Selenium IDE v1.1. It also includes some refactoring to bring improvements from my latest plugins. You will get it automatically when AMO approves it. If you want it right now, you can get it directly from the version page on AMO.
There is a potential for test failures if they depend on the style attribute either directly or indirectly. Let me know if you face any issues with tests which fail only when highlight elements is on and pass successfully when highlight elements is off.