Toad cannot connect to an 8i database with an Oracle client 11g.
Oracle does not support the connection of an Oracle 11g client to an 8i database. Install a 9i client and switch between different clients using the "Installed Client" drop down field in Toad's new connection window, depending on what version of database being accessed.
You need to use a 9.2.0.8 Oracle client to connect to that database.
Note:
Oracle documentation notes compatibility between Database versions 8.0.6 and 8.1.7 to client version 9.2.0. You need to make sure you have a 9.2.0 Oracle client.
Toad system requirements notes test and support for Oracle 8.0.6 and 8.1.7 servers and 9.2.0.8 clients.