When I filed 2007 returns, I received $42 refund from NY and paid $145 tax to NJ when I filed the tax return. I also itemized my federal tax return for 2007. For 2008, shouldn't I get credit for paying taxes on 145-42=$103 (net of payment and refund)? This is the amount that was not reported on 2007 federal return as state tax.

In essence, you are correct. You paid NJ tax of $145 in April 2008, so you can add that to the total amount of state taxes paid in 2008 - just as if you had paid estimated taxes to NJ throughout the year. As for the refund from NY - if they actually sent you a check for that refund (as opposed to applying the $42 as a credit towards your 2008 taxes), they should have sent you a 1099-G form to document that amount, and you include the $42 as income in your 2008 federal return.