This really resonated with me.
From my own experience, and speaking as someone who danced ballet for a number of years (in point shoes), wore girlish clothes and make up, etc... –– it's impossible to know who your son is going to "be" when he's an adult.
People tried this a lot with me. It was always painful when I was sat down and given the "talk" that "it's okay to be yourself and be gay." (It is.) However, I wasn't gay. And when I told family/friends/teachers this, they laughed and said I was in denial. Everyone tried to tell me that I was gay, and so I began to believe it. Because of this, I dated NO ONE seriously or intimately until I was 25.
You son is 8 years old. All his actions which seem like sexuality/gender defining things are just actions and things to him. Pink sparkly things are cool. Women's clothes are BY FAR more interesting visually than men's.
That said, society will simply assign labels. It's what people do. It sucks. But the only label you need to worry about is being a parent to your son. You son will learn all about labels and what he wants assigned.
I still wear pink underwear, but I like to have sex with women. I don't care if that confuses/upsets other people, who shouldn't be looking at my underwear anyway. But what I wear and what I do are my business.
Your son's too. If he's confused by other people's actions/attitudes, it is your duty to explain why. And it's up to your son to decide how he'd like to be perceived.
EDIT: I realize a big part of the question is a paraphrase for 'how to prepare your son for a cruel world.'
The only thing you can do is tell the truth. His older brother is taking on this mantle and trying to protect his younger brother in the only way he knows how: to let him know what behavior is acceptable social standards. He isn't wrong. Children aren't complex. Society judges us all quickly with little regard for personal complexity. The older brother's reasoning is likely -- Behavior "A" == receive bullying; solution: stop behavior "A."
Also, what I tried to illustrate from my own life is that sexuality isn't determined by any other action than sexual intercourse and what stimulates you to engage. At 8 years old, it's unlikely he has made any decisions regarding this.
When your son is older and begins asking more questions regarding sexuality, the one conversation which helped me was with my (dearly departed) grandfather. When I was about 15, I asked him if I was gay. He very seriously responded with, "when you walk into a room, who do you to look at more?" My answer was "girls, but I [dress the way I do and like makeup, ballet, etc.], and besides, what does that have to do with who I like to look at?" His response, "then who do you like looking at you?" (Girls.) While it wasn't obvious at the time, it was a life-changing conversation in very cut-and-dried terms, which would echo into my future.
Again I want to note that it was helpful to learn that my actions cast specific judgment on me, and yet I still found ways to rebel which make me happy being me. (Awesome pink underwear.) But I've also learned how to live in society and not aggravate total strangers or coworkers to irrational behavior. (More or less.)
PS: I realize my answer now seems to have drifted from the question slightly, however, the OP originally tagged it "homosexuality."