im guessing you didn't unlock the 8gig drive ?
you need to bang it back into your friends hd, get the hddkey, not sure about this but i think you can use config magic to unlock the hd, every time you boot your xbox up during the flubber/blob thing it unlocks the hd not sure how this works but im guessing it uses a key thats stored somewhere (eeprom)?. you need to unlock the hd like you did with your old hd that you put into your pc, if you have no hdd key, its usless. if you can put it into your friends xbox, load up evox (if its got it to) and go to settings > backup, it will make a file called hddkey in c:backup. oce you have done that to use xbox live you need to relock the drive in your xbox using config magic, im guessing it writes some crap to the xbox eeprom so it can unlock the hd everytime you boot up. when you power down the xbox the hd is relocked. Some kind of security messaure to stop people looking at the files stored on the hd.
correct me if im wrong. if the hd is locked, you wont be able to format it ? so everything that was origionaly on the hd should still be there.