I took a 10,000 loan from my 401k in 09/08 pending medical expenses. I was laid off 12/08, no more payroll deductions for payment, loan will default end of this month. Do I count it as income for 2008 and pay penalties for early withdrawal or 2009 when it defaults?

You haven't received a 1099-R for a withdrawal in 2008, have you? The loan is reclassified as a withdrawal when you default on the loan. So that would be in tax year 2009. You should receive a 1099-R in January 2010 that will document the withdrawal, for use in preparing your 2009 taxes at that time.