I want to make a little board with a mega168 (maybe a 2313 but ill figure that out) dedicated to arduino isp, but I would rather not have to use a external clock, so does ArduinoISP work at 8MHz, and if so (I imagine it would) what penilties would there be?
ie: would I have to change stuff in the code for the new clock source, would I have to slow down the serial connection from 19200, or anything else?
In its current state, I don't think it will work on a 2313. It's too big and I don't think the 2313 has dedicated SPI hardware. For that processor, you will probably be better served with something less Arduino-ish (asssembly or direct port manipulation C). I vaguely recall crossing paths with various open source ISP software when searching for other things.
For the 168 @ 8 MHz, the transfer rate will be cut in half but I believe the ArduinoISP sketch will work at the slower clock speed.
You do not need an accurate processor clock. The actual bit rate / processor speed is (for the most part) irrelevant.