I'd say Fender Mustang (or Jaguar if he wants versatillity) could work pretty well, but you can get a great sound from an Ibanez Artcore (hollowbody) for around 3 to 500 bucks. Your 250 or 300 dollar models have little to no features, but they sound really, really good. He might like a solidbody Godin (5 to 700) if he likes the Nels Cline sound (not too close, but it has sort of a noodle sound like Cline).
For an amp, you don't have to spend allot. Most people would tell you to go with a tube amp. I'd agree that tube amps are better than solidstates, but at age 8 and only playing for a year, you can rest on a Fender 202 Frontman. It normally goes for about 2 to 300 bucks and sounds pretty incredible for the price.
It's great that you encourage your kid to play. Try to find those guitars, and if you'd like me to go into more detail. I normally use
ProGuitarShop.com to find my guitars and gear as they have demonstration videos and nice descriptions. You can let your son loose on the site, and if there is a specific guitar he wants, we can point you to a cheaper build of the same guitar or point you to ebay.
peace,
-nick
(I'd also like to mention that PGS is the only store I can think of that sells the lovepedal Kanji Eternity Overdrive pedal--greatest overdrive pedal I've ever used, and I could almost guaruntee that your son will like it as well. If he wants a heavier distorted sound, I'd recommend checking out the hotcake, or one of the ZVex distortion pedals.. and I mention this to you because if you buy the frontman, you'll find that the distortion isn't all that impressive sounding).
PPS, I've heard that the Italia line of guitars are pretty good sounding and also have smaller necks than average guitars, but don't take my word for it.