Hi,
V8 still fails on filleting.
If it took a ball bearing and rolled it around the user selected chained edges then this wouldnt happen.
V5 fillet edges does my head in, V8 I had hoped was better.
The fillet option exists and is called rolling ball. However in your case the fillet fails because of the narrow circle segments. You can trim the surface with a pipe and use the BlendSrf command