Don't know if this will help in all uses of this but here's what I found.
It's obvious that the payment options are not showing up but are they not there because of something else is preventing them? I did a compare of the includes/templates/template_default/templates/tpl_checkout_one_default.php file for both the 1.0.7 and 1.0.8. In looking for what changes might affect payment, I noticed the addition in 1.0.8 of code to NOT display the payment-method if there is no shipping method. Actually done by checking to see if there IS a shipping method and then adding the payment methods. The new addition lists (on line 178)
Code:
if ($shipping_method_available) {
This led me on a search for $shipping_method_available to see where it was set. Turns out $shipping_method_available couldn't be found anywhere but in the file itself and only on that one line of code.
Thinking it couldn't be that simple, i changed the line to what I was able to find elsewhere.
Code:
if ($shipping_method) {
That managed to bring up the available payment methods but didn't play well with the free items as it would not allow confirmation of the sale on free shipping. Something is stopping the checkoutOneSubmit div from firing.

Commenting out line 358 and 391 got the submit button back but there are still problems with the fact that the system is not informing us that the shipping method is free.
Brain is fried at this point. Hopefully this will help in the search.