I even know few of them who reverted back to windows 7 just for the sake of this problem. So put down the exact steps that you can follow in order to have the installation and the development for WP7 running smoothly on your new Windows 8 OS without any problems.
1. Install Visual Studio 2010 if you don't already have it installed.
2. Install Visual Studio 2010 SP1 , again if you haven't already installed it.
3. Download and install Windows Market Place Client from : http://www.xbox.com/en-US/LIVE/PC/DownloadClient
4. Download and install XNA Game Studio 4.0 from : http://www.microsoft.com/en-gb/download/details.aspx?id=23714
5. Download and install Windows Phone SDK 7.1 from : http://www.microsoft.com/en-us/download/details.aspx?id=27570
6. Finally, download and install Windows Phone SDK 7.1.1 update from : http://www.microsoft.com/en-us/download/details.aspx?id=29233
[P.S : Make sure you follow the above steps in the same order]