Just about any problem like this can be fixed pretty easily at this stage, but it would help if you could provide a bit more information. What kind of boat are you building? Is the problem on the outside or inside of the hull? Did you sand to the glass, through the glass, or into the wood? What is the 1/8" dimension? Is that how deep you sanded or how wide or how long? Do you plan to varnish or paint?

More information. I am building a C17 kayak.I am just sanding the wood on the outside of the hull. It is the step just before you add glass cloth over the hull and the first coat of epoxy. I cut into the wood during sanding during rounding all edges and smoothing out the epoxy filled. The sanding removed a small area (length -3-4" of the outter layer of wood along the middle seam of the hull and approx. 1/16" in depth. I am not sure this is a problem, but I thought now is the time to ask.I am not sure if I am going to paint or varnish the hull at this point. Thanks for your input.

Quickstart,

I would mix up some very thick epoxy (using wood flour), use a 6" putty knife and smooth over the area (like filling a drywall seam).  This can easily be sanded back to the general profile of the hull edge/curve, and once sanded out should only leave enough epoxy to cover the spot (all the wood should remain visible and suitable for varnish). 

I'm painting a 1" stripe along all edge seams (of my CL17), so any goof-ups will get covered by that.  I used this method to smooth over deck nails that were driven too deeply, small deformities along the hull/deck curve, etc. 

Lastly, I'd save the 80 grit paper for after you've glassed and filled in the weave..., that's when you'll need it, and when it'll do the least amount of damage (believe me,  you'll wish it did more damage at that point!).  Also, do all your edge sanding by hand with 100 or so grit.  Easier than it sounds and much more protection against these kind of issues.

Good luck; post pics when you can,

Larry