There are 3 issues with drives larger than 4GB. The first is scsi.device, the second is the hard drive prep utility (HDToolbox), and the third is FastFileSystem.
OS3.9 fixes all of these. If you can use 3.9's HDToolbox (which may require you making and then booting from a 3.9 Emergency Floppy), then you can prep the drive and install a filesystem that will allow you to use all 8GB. Your boot partition must be within the first 4GB of the drive, since the 3.1 ROMs need to be able to identify and boot from it in order to load the updated 3.9 modules.
If you're staying on 3.1 it gets a little harder. You need to patch scsi.device and FastFileSystem, and you need a different prep utility - I use HDInstTools in these cases.
Easiest solution? Use a 4GB Flash card instead - no patching required.
It'll still be a huge upgrade from your 500MB drive.
