Many of the commentaries that now surround the text of the Talmud and other classics began as the marginalia of great scholars. Of course, one should nevertheless show respect to the texts by making an effort to avoid messy scribble and ensuring that the page does not look unseemly.
There are even times when it is mandated to make notations. The gemara[1] says that one should not leave holy texts without correction for an extended period of time, apparently out of concern that they will be used improperly or that those who learn from them will be misled. The poskim say that this applies to any sefer from which one learns.[2] The Rama, however, cites a ban on making corrections based on one’s own logic, limiting these corrections to cases where there is clear proof of an error. The Pitchei Teshuva[3] suggests that one leave the printed text as is and write the tentative correction in the margin; this maximizes the benefits of corrections while minimizing its risks. Writing corrections and emendations in pencil is not only a sign of humility, but also can spare one embarrassment if his ideas turn out to be flawed.
The Torah prohibits erasing any of the Divine Names,[4] and there is a rabbinic prohibition against erasing or otherwise disgracing any Torah texts unless necessary.[5] One may not trace over the Name of HaShem with one color ink in a way that covers the Name that was written in another color.[6] However, most poskim allow one to cover the Name with ink of the same color, as this is not considered erasing the bottom script.[7] Highlighting should be even better than this because the original writing remains fully legible. In fact, its purpose is to emphasize the highlighted text, not to erase or even cover it, and thus there is no disgrace involved. Nevertheless, regarding the Names of HaShem, as opposed to other parts of Torah text, one might prefer to underline rather than highlight.