If I recall correctly, the Beige's onboard ATA controller requires bootable OSes to fall within the first 8 GB of a connected drive. I'd assume that's why your bootable partition was made 7.8 GB, and placed first. Edit: The 8 GB limitation only applies to OSX booting, OS 8.6 / OS 9 is not affected -- thanks to a friend.
The Beige G3 does not support option-boot selecting, that feature turned up much later.
Make a folder called "Mac OS 8.6" at the root of the 7.8 GB partition. Copy 8.6's folders into it. Then see if you can boot into 8.6 from there.
OSX won't want to select it, because it's not OS 9. And 8.6's Startup Disk control panel won't want to select OSX because 8.6 knows nothing about OSX. So switching back and forth might require booting from the relevant CD each time, and selecting the proper OS, then rebooting.
Edit: The 8.6 System Folder may have become unblessed somehow. Boot from the 8.6 CD, and look at the 8.6 System Folder on the hard drive. Does it show the Happy Mac on the folder, or is it still a generic folder? If there is no Happy Mac on the folder, open it. Drag the System suitcase and Finder out of the folder. Close the System Folder. Drag the System suitcase and Finder onto the closed System Folder. Both files will go back in, and the Happy Mac icon should appear on the System Folder. Now try to boot into the 8.6 install again.