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What is this file? Is it necessary for windows to run properly? How can I get rid of it if it is not necessary?

My guess is you have a Lexmark printer. This file is associated with the printer program for this hardware. If your printer is connected over the network, and you disable this (end task), it will cause printing problems.
If it's a local printer, it's not needed.

http://www.answersthatwork.com/Tasklist_pages/tasklist_l.htm
Lexpps.exe
Lexmark Printer Port Scanner. Background task which auto-loads with the rest of the printer drivers and which allows your Lexmark X or Z Series to be shared over a Windows peer-to-peer network using the conventional method of setting up a shared networked printer (without it, you will not be able to share the printer using the conventional Windows method).
Recommendation :
This task is a comprehensive nightmare. From preventing your PC from booting up, to interfering with your network card, to asking your Internet firewall for permission to install itself as a server application, to general PC instability, this task has everything to make you instantly return your Lexmark X or Z Series printer and go for something else, and some users have done so !! In order to regain your sanity the first thing to do is to rename LEXPPS.exe to LEXPPS.exe.OLD (do it in Safe Mode if you cannot boot your PC normally) – this will ensure that this task never loads and will cure all the problems that it causes. If you need to network the printer over a peer to peer network, do not use the standard manner, instead install the printer as a local printer on the remote PC, and then go and change the port from a local port to the network share that the printer is known as.

I do not have lexmark printer. I have a compaq printer. This file is annoying me because it should not be loading in the first place. Also my firewall has asked me for permissions regarding this file. I went and renamed it to lexpps.exe.old. I hope I can rid my machine of this file.

Compaq sells some systems with ink-jet printers as part of a package deal. One of the low end printers it uses is the Lexmark Z.. printers repackaged with the Compaq logo. It includes the repackaged Lexmark printer drivers. So if you have LEXPPS.exe on your system (including LEXBCES.exe, check Close Program with Alt-Ctrl-Del) then you do have a Lexmark printer.
NOW HOW DID I MISS THIS ON LEXPPS.exe. THANKS to TheKid for finding that link.
I have spent years making my Windows ME stable and tracked the last major problem down to problems with the Lexmark printer drivers or associated Windows modules. Had given up and just removed the Lexmark printer until I needed it, then installed it for printing, and removed its drivers again. But had not found a solution until today. Lexpps.exe is gone, along with the last of my major program hangs and my shutdown hangs.

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