Does said monk have 8 hands?
At the most he can grapple two people since he only has two hands.
http://www.d20pfsrd.com/gamemastering/combat#TOC-Grapple
My interpretation, strictly as written, is this: To grapple someone is a CMB vs CMD check. To release someone from being grappled is a free action. To maintain a grapple is a Standard Action that also allows several add-on effects, such as forced movement or free damage. If you do not take this action to maintain the grapple, it will fail. If you do not have 2 hands free, this check is at -4.
Can a monk with 8 attacks perform a grapple against 8 different targets? Yes, at -4 for the attempts after the first success (unless a free action is taken immediately before the next attempt to release the target). Can the monk maintain the grapple against 8 different targets? No, as it takes a standard action (not a grapple maneuver check, which could be made in place of an attack) to maintain a grapple.
That's what the rules say. The rules do not preclude the ability of this monk to cause 8 targets to gain the 'grappled' status for a turn. He could then, on his turn, take the free action to release everyone and then do another flurry/grapple combo and re-grapple them. If I were you, I'd have the 8 monsters ready action against being let go and have them five foot back. Or attack the monk.
Unfortunately the grappled condition says you can make CMB checks to grapple or escape a grapple while grappled. I believe the RAI is that you can make the check only against the other entity in the grapple, but it doesn't say that. It also says you can take no action that requires two free hands, which is why there would be that -4 to subsequent grapple checks for the monk's flurry.
The core question in this is whether or not being in the grappled state precludes you from initiating a grapple against another target. If not, what is the penalty for multiple grapples?
It works both ways; can a person being grappled by a monster grapple a different monster, setting up a circle-grapple? So: Monster 1 is grappling Player A and Monster 2 is grappling Player B. Can Player A grapple Monster 2 and Player B grapple Monster 1, assuming all four are adjacent to each other? Then 1->A->2->B->1 is the grapple order.
With rapid grapple and greater grapple it seems you could potentially maintain grapples on 3 people if you had enough hands. At least by raw, greater grapple should at least allow you to maintain a grapple against two people if you have two hands. I think of it like grabbing two people by the head and banging their heads together., etc.
In fact, as this is a pure RAW argument, you can keep as many people grappled as you have actions a round. With Rapid Grapple, that number is three. You don't need any free hands; by the rules, your hands are not considered occupied during a grapple (so my previous comment about -4 on the check is incorrect based on rules as written).
Humanoid creatures without two free hands attempting to grapple a foe take a –4 penalty on the combat maneuver roll.
This implies that the number of hand should apply, and RAW does not really limit the number of people you can grapple, so technically you can grapple 2000000 people if you have can find a way to reach them, but the devs often implore people to use common sense instead of going strictly by RAW.
As I always like to say the dead condition, unlike other conditions, does not state that you can no longer take actions so by RAW even a dead character can keep fighting while a paralyzed one can't.
The rules also don't say you can't make a change direction in the middle of a jump.
Correct. The problem described by the OP was in trying to find a place in the rules that prevents the player from doing what he wants even though common sense says that is a bit unreasonable. Hence the adherence to RAW in the discussion.
And the part about being dead is obvious; of course dead can take actions - else how would all those zombies and vampires and liches cause problems?