Basically all the <=9 speed Shimano rear derailleurs are compatible with the <=9 speed Shimano shifters (excluding some old Dura-ace and a few other weird exceptions). So, you need to match:
1) Being within the capacities of the derailleur (max tooth, min tooth, chain capacity -- based on the chainring and cog sizes)
2) # of speeds on the shifter = # of cogs on the cassette
As for needing a bigger hub, check that your hub is indeed a 7 speed hub; if so, you need a new hub (which a new wheel would likely be the upgrade route), but a lot of people have 7 speed cassettes on 8/9 speed hubs.
Note that the cost of the new wheel may make the upgrade route not worth it economically (you're looking at the cost of a new shifter, new cassette, new chain and a new wheel).
Based on the derailleur, the bike is probably close to 24 years old at this point, which makes it questionable to do these upgrades at all (and likely that you have an actual 7 speed cassette wheel, or maybe even a freewheel based bike, which would require an 8 speed freewheel or a new cassette wheel). I'd advise getting a newer bike from the get go instead and leaving this the way it is, if you want to do a 1x8 conversion.
Also, there are other smokey grey derailleurs on the market from Shimano (e.g. in the Acera line).