OK, there are two common types of email.
Email was originally only sent as plain-text. Plain-text (as the name implies) will not let you do more than send (plain) text. No markup or HTML (bold, italic, pink highlight, etc).
The other common type of email is HTML. Mail that is sent by HTML can have embedded style, and can have almost any formatting that a web page can.
If somene sends you a plain-text e-mail, your mail client assumes that the original sender cannot or does not want to receive HTML mail, and it will reply in kind. You will be able to tell when you are replying in plain-text because like you noticed, the toolbar with formatting options is disabled.
As far how to fix it, it depends on which mail client you are using. I think in Outlook (not sure about Outlook Express) you can go the properties of a contact and choose what kind of mail you want to send that person. You may also be able to set an option to compose all of your mail as HTML if you wish.
*I'm leaving out some technical details, but I think they would only confuse the point.