Answer

See here, section 3: http://etzion.gush.net/shvut/100/100kidashto.html
One can investigate whether the commandment of “and you shall sanctify him” was said about those priests who actually offer “the bread of your God,” or whether it was said about anyone affiliated with the tribe of the priests. [5] When the Talmud in Gittin 59b brought the verse “and you shall sanctify him,” Rashi added the continuation of the verse, “for he offers the bread of your God.” From this it can be inferred that Rashi’s view is to honor only a priest who serves, and consequently this would not apply to one with a physical blemish, who is unfit to serve[6]. Maimonides, however, says explicitly in Sefer HaMitzvot (quoted above) that there is room to honor even those with physical blemishes. His view is that the law of “and you shall sanctify him” was said regarding “the entire distinguished seed, whether whole or blemished.” If so, Maimonides’ position in Sefer HaMitzvot is that this law depends on the priestly lineage, whereas according to Rashi one could say that it applies only to a priest who actually serves. [7]
As for a minor priest, the Magen Avraham (Orach Chayim 282:6) says that the law of “and you shall sanctify him” does not apply to him, since he does not offer sacrifices (even though he does eat, like one with a blemish), and therefore he is not called up first to the Torah. It is clear that the Magen Avraham understood this law as having been said only regarding a priest who serves. But even according to this approach, there is room to say that a minor priest should be honored, since he is considered fit for service when he grows up, and this is not comparable to one with a blemish[8]. In any case, Rabbi Akiva Eiger there disagrees with the Magen Avraham and brings that even one with a blemish is included in this commandment, and if so it has no connection to the service but rather to the priest’s lineage[9]. Therefore there is an obligation to call up a minor priest first if there is no other priest.
The Pri Megadim (ibid.) says that according to the opinions that “and you shall sanctify him” is a Torah-level positive commandment, one certainly must be stringent and call up a priest with a blemish if there is no other priest; but if there is another priest, one should not call up a priest with a blemish.
Plainly, “and you shall sanctify him” applies to a secular priest as well, since this is not an interpersonal commandment that depends on “one who acts as your fellow.” Still, one could argue that his holiness has been profaned because of his actions, but it seems that this is no worse than one with a blemish, who does not serve. However, in Chelkat Mechokek, Even HaEzer 5:1, it is written that one with a blemish has no holiness at all, not even regarding eating sacred foods or ritual impurity, but that is a lone opinion.