I'm running a database in SQL Server 7.0 and it currently has an mdf
file that is 4 Gigs and a transaction log file that is 8 Gigs. Why do
I have such a big log file. What can I do to reduce the amount of
space this database is taking up. I've done a "shrink" through
Enterprise Manager but it didn't do much. Do I need to truncate the
data in the log somehow?

1.
A Back-up should commit all the data in the transaction log. If you
still have 8GB file you can try shrink at that point.

2.
If 1 does not work, unattach the database, delete the transaction log
and reattach it again.

the above comment is basically correct.

the commands are (under the sa username in query analyser):
exec sp_detach_db 'dbname' to detach
exec sp_attach_db 'dbname' to attach

please note that while the DB is detached it is NOT available to anyone.

Another thing to do - to prevent this problem in the future, is to
check the "truncate log" option under the enterprise manager otions
for this log file.

A log of this size will usually require a lot of backups until it is cleared.
If you don't need the log for anything, you can convert the database
to simple recovery mode, which doesn't create a transactional log.
To do this, get the database properties up in enterprise manager, go
to the last tab, and you will find the option to set the recovery
model.
After you have set this you should be able to delete the log.