What files are in local settings/temp and can I delete them?

The location you mentioned is the default location for System Environment Variable "TEMP" or "TMP". Applications use the TEMP for storing temporary data, data that will be needed for the specific user session & installers use it to extract the data from the compressed installation files. You can safely delete any files that are not locked. (Locked files are still being used by application for storing user data). The easiest way will be using CCleaner a freeware to do it for you.

Can I delete this? What are the implications?

You can go ahead with cleaning up of this. There would be few files which are in use by Windows, and you'd error out while trying to delete them.

I'd recommend using a tool like CC Cleaner to clear up.

C:\Documents and Settings\[MyName]\Local Settings\Application Data holds data regarding configuration files, settings, and other data which may/may not be required. I recommend you don't touch this directory.

Everything in the tempfolder should be ok to delete, some files are probably locked but you can ignore them.

Do NOT touch the "application data" folder. This is where all "good behaving apps" store their data (settings and such)

You may find yourself unable to uninstall some applications that put their .msi packages there. Other than that it's all right to clean up. Better do it right after reboot so that less files there will be in use.