It doesn't matter. I suggest you put your windows volume at 100% then set the knob at a level you don't want to exceed. Let's say for games you use a higher volume, set it at a level you need. Or perhaps a little bit lower to preserve your hearing.
This way you don't go too loud and you have the most fine tuning steps. And theoretically the best sound. ;)
And for windows 8 compatibilty, i'm not really sure. In the demo version (pre-release) it worked for me. You can always download the upgrade utility from microsoft itself which checks all the connected hardware's compatibility.