Could it be that she just wants the closeness that you and your younger one are experiencing? But not necc. nursing, since she seems embarassed by it. I know it is/was hard for my older one watching the younger one nurse, and even after my younger one weaned, we had a certain closeness because of it that I didn't really have with my older one (My youngest also co-slept, but older one didn't, and my younger one is naturally more cuddly, whereas my older one isn't, but I've realized that this doesn't necc. mean she doesn't want closeness, just doesn't know how to be close). They nursed 1.5 yrs and 2.5 yrs respectively. I had the same issue come up, but my older one was only 2 so it wasn't uncomfortable to tell her, "sure, if you want to". Not only did she not know how anymore, but she just touched her mouth to my breast and laughed and said, "I don't nurse anymore". It's like firemom said, she just wanted to know that she could if she wanted, and she really didn't want to.
I can understand that it would feel uncomfortable for you at age 8, but I wonder if there is some way that you could have alot of closeness, both physically and emotionally, other than nursing. I have really made an effort to do this with my older dd. Offer to let her sleep in my bed when dh is out of town, hold her, do special projects with her without her younger sister being involved, etc.
(This is written in a rather disjointed way, sorry.)