I only have about 300 mb availible on the internal storage, all of my 8 gigs is allocated to system storage. That doesn't seem right, what is the system storage for the windows mobile OS?
Open the Storage Sense app to see what's taking how much space. I have 4.31 GB of system space on my Lumia 1020. It could be you need to do a hard reset to free up space. While I'm not positive of the best solution, from your statement "all of my 8 gigs is allocated to system storage", it appears you don't have anything apps installed on the phone, so perhaps you wouldn't lose anything.