ATmega8 Timer2 problem
Since you set your prescaler to 8 and use Fast PWM mode, your PWM frequency is about 7812kHz (16MHz / (8 * 256)) as Ignacio already pointed out. If you want see your LED blinking you probably have to lower the frequency. 

However, I suspect the main problem is, that you set OCR2 to 0. The resulting duty cycle depends on the OCR2 value.


  The extreme values for the OCR2 Register represent special cases when generating a PWM
  waveform output in the fast PWM mode. If the OCR2 is set equal to BOTTOM, the output will be
  a narrow spike for each MAX+1 timer clock cycle.