You can keep the derailleur from going off of either end of the cassette by using the limits screws.
You have two choices on how to set up the shifter/derailleur: Line up 1st gear on the shifter with the big cog in the back, or line up 8th gear on the shifter with the smallest cog on the back (which is what I think you did). I would do the first of these options.
I would set the cable tension so that 1st gear on the shifter lines up with the big cog. This way, you loose the "8th" gear. I think the advantage to this is that if you "overshift" into 8th gear, the cable just goes slack. Use the high limit screw to keep the chain from moving beyond the small cog.
If you line up 8th gear on the shifter with the small cog, then overshifting means that as you press the shifter to downshift past the large cog (from 2nd to 1st on the shifter), the shifter is pulling the cable and fighting the low limit screw, and you could possibly break something if you are feeling hamfisted that day.
7 speed cassettes are pretty cheap, but if you are happy with the gearing you have with the 8, no reason not to keep running it.