This is simply not possible to do well. I've seen devices claim to be able to do it, but the math just doesn't work. In order to intelligently discern the intention of the player, you need a lot of information from the joystick position to base some decision making upon. With a 8-way stick, you have 4 switches. When moving from any of those four switches to one adjacent to it (4-way simulation), your initial dataset has now dwindled to only 2 pcs of information. In the real world, that's known as a "coin flip". In the end, you have a 50/50 chance of discerning the intent of the player, so there is no improvement in performance....maybe even a degradation in the end.
You can use an algorithm or two to "track" the situation, such as: "if the last good direction is UP and the next output from the joystick is UP/RIGHT, then make direction RIGHT", but even this has major problems. What if the player didn't intend to drift from UP, and hit the diagonal by mistake? What if the last "good" direction was guessed incorrectly? Again, back to the "coin flip", where one side or the other is more heavily weighted through speculation, but accuracy is not truly improved.
49-ways and analogs have much more info to work with, and are therefore suited to such endeavors. Regular switch joysticks are, unfortunately, not.
RandyT