How to Set OnClick attribute with value containing function in ie8?

You don't need to use setAttribute for that - This code works (IE8 also)

<div id="something" >Hello</div>
<script type="text/javascript" >
    (function() {
        document.getElementById("something").onclick = function() { 
            alert('hello'); 
        };
    })();
</script>

You could also set onclick to call your function like this:

foo.onclick = function() { callYourJSFunction(arg1, arg2); };

This way, you can pass arguments too. .....

your best bet is to use a javascript framework like jquery or prototype, but, failing that, you should use:

if (foo.addEventListener) 
    foo.addEventListener('click',doit,false); //everything else    
else if (foo.attachEvent)
    foo.attachEvent('onclick',doit);  //IE only

edit:

also, your function is a little off. it should be

var doit = function(){
    alert('hello world!');
}