Usually running the DirectX updater
should install all necessary files. Manually copying them from somewhere can cause problems.
I don't have a d3d8.dll either in that location on my Win7 64 bit, but in C:\Windows\SysWOW64. That's actually where 32 bit versions of DLLs are stored, and accesses to system32 for 32-bit applications are automatically forwarded to SysWOW64. So you should be fine if it's there.
I think the error rather implies that the game has a problem initializing Direct 3D.
You can try if replacing the prefs.prop
You could also try if the demo
works to see if it's an issue with the steam version.