I've put it through the sim, and it works fine for me.
It may have to do with the way you think this routine has to be used. I get the impression that you think you have to provide a number in rand8reg and then call the routine to get a random number. But the trick is NOT to touch rand8reg, unless you want to reseed the generator. That way each number leads to another each time you call rand8. In other words: the generator will provide itself with a new rand8reg value every time you use it. I hope this makes sense.