The error seems pretty obvious to me.
TypeError: Error #1009: Cannot access a property or method of a null object reference.
at vars$cinit()
at global$init()[C:\Documents and Settings\Me\Desktop\Breakout\Flash Stuff\vars.as:11]
at Breakout_fla::MainTimeline/frame1()[Brea kout8_fla.MainTimeline::frame1:136]
Notice how it says "at vars$cint()
That means when the vars class is initiated. And since you don't have a constructor, and there are no instances of the var class, it must mean as soon as it's imported or maybe even when the flash is compiled, and it doesn't have to be imported at all.
So then it's not finding blueBlock._root.pacball or whatever you wrote, it's null, it hasn't been defined yet.
And I'm not sure when or where you add to blueBlock._root. All I know is it thinks that it is null, so you need to change something. I recommend having a static Init() function or just setting those two properties. You would do either of these AFTER you make sure to add blueBlock._root.pacball.
Hopefully that helps? I don't recommend setting variables with object references straight out of the class definitions ever, just do it inside of an init function so you don't have to assume.