So I made this Ultimate Timeline Form of the games from 1991 to 2018

The way I (used to) see it, After the echidna incident emeralds ended up on West Side island, and, when those were also irresponsible, most of the emeralds ended up on another island, but neither South Island nor Flickies' Island had any stated issue with gods in the past, yet both had giant dimensional rings that Chaotix identifies as created by the echidna tribe, so I took another approach:

1) Pachacamac does his thing, everything goes to hell.
2) The power of chaos unleashed in the conflict causes a massive inbalance in nature, tearing apart the continent into pieces.
3) Each island suffers a different destiny: one defies gravity, other one becomes a mirage, the third one starts swirling through the ocean in a permanent dimensional rift, and there's one who gives dimensional power to its birds instead, and we even have one just created when thanks to the chaos rings reacting to Master Emerald's return to planet's surface. We know the continent itself stood big enough to still be defined as a continent in SA1.
4) Time passes, the legend of the fallen empire of the echidnas is spread with different versions of the same tale, depending on how raging the gods fallen from the skies were.
5) Back to present day, each island stands as a separate legend, but they share a lot of elements that could intrigue archeologists for centuries.
6) The Phantom Ruby is in fact the result of that contiental breakdown, and was mistaken as a Chaos Emerald during StF, or buried in Angel Island as a remnant of the ancient event (not sure how this would fit in your timelines).

 

The problem with that is that it's specifically stated that the Ruby came from a dimensional breach in the atmosphere. It's appearance and burial after that disturbance is what causes Angel Island to return to the surface as it affects the Master Emerald.

While I can't really explain the 8th chaos emerald myself (aside from an obvious retcon), I subscribe to the idea that StF takes place right after Sonic 4: Episode 2 in the modern timeline, that place being filled by Mania in the Classic timeline. The Death Egg MK II is modified into the Death Egg II (with or without Little Planet) and they race to destroy it. To be honest though, the idea that 8 heroes would all fight to see who pilots the ship is kinda ridiculous, but that aside I think this would be the most appropriate place to put the game in the timeline.

 

StF occurs right after SA2 and the 8th emerald is the fake one Tails makes. That's why he designed his rocket to use 8 emeralds, only he knew there were 8 at that point. (And understanding the designs of the fake emerald, he could design a power source that didn't self-destruct the way the ARK did.)

 

Well, it took a while to crystallize it.
Or maybe it just came from its own special stage (egg reverie?) after so much meddling with the chaos emeralds and their master in that island.

 

I think Sonic the Fighters is a good example of not letting game design choices conflict too much with the story events.
8 Emeralds was only there becuase AM2 needed 8 Stages. The overall story and events of Sonic the Fighters would still be the same whether there are 6, 7, or 8 or 10 Emeralds.

If you want Sonic the Fighters to fit with the rest of the games, you probably gotta just handwave that 8th Emerald away and pretend it was always 7.
(or pretend the 8th is the Master Emerald or some other high-power macguffin. There's plenty of those in the world )