I once played a mod pack that had a mob in it called MicroBlocks or something.
Basically, you used Saws to craft Slabs, Panels (1/4 block thick) and Covers (1/8 blocks thick) and could create aslo 7/8 5/8and 3/8 blocks thick "slabs". you could place slabs vertically, or saw them again on the other ide to get pillars of various widths that you coulde place in each corner or center of blocks. You could place multiple such "microblocks" in a single block space to make more comples shapes, too.
While you could not make ALL possible configuration as if you ttruly has blocks that were 1/8 the size placeable in any "microblock" 8x8x8 position within a single block, it as good enough for a lot of builds. It used metadata, so pistons didn't work on those blocks.
Now, with perfectly cubic sub-blocks that are each 1/2 the size of normal blocks, I think something like dropping the Anvil matrix like structure in favor of a Cubic Chunks -like structure would help a lot here. Using cubic chunks would lend itself naturally to having blocks that are sized along 1/2, 1/4 and 1/8 the size of "normal" blocks. Could even go the other way and support gigantic sized blocks too that are each double, quadruple, etc.. the size of nomal blocks (but those would need to align on their properly size grid, for example you could place a doublesized block at coord 0 *or* 2, but not at coord 1, exactly like a 1x1x1 block needs to align with the "normal" 1x1x1 grid and can't say be placed for example a half-block higher, lower, or to the side. Ever tried to put a bed on a floor made of normal (not upside down) slabs ? Noob mistake, I know, but still, so much lol !
Ideally, I'd like to be able to use slabs for putting on each side of a double-bed, and flower pots DIRECTLY on those. :-)
From what I understood of the eighth-block engine, it simply took the 1/2 scale blocks that float on block destruction (the things you see that click and cloop as you run over them and add them to your inventory) and took away the spin and made them static and permanent. There was a bit more chicanery involved, but for the most part, it worked quite ingeniously.
Any latent idea would be an extension of that; however, Jeb and Notch both agreed to avoid adding eighth blocks into the game (much to my own dismay.)
Since it's just another option for builders, I support. I prefer this over suggestions that EVERYTHING be made up of smaller blocks, This suggestion allows the breaking of existing blocks into microblocks so that only the people that want to deal with them have to.
I would like to see someone update this mod even with the ability to generate biomes based on the 1/8th sized blocks. One thing I have always wanted was the ability to actually walk up hills without having to jump all the freaking time.