I'm trying to shoot a traffic light trails with my point & shoot camera (Panasonic Lumix DMC-LZ8). But the oncoming vehicle headlights are appearing as large blobs of light and not exactly thin lines like I see normally in other light trails. I set the aperture to 8.0 (thats the maximum my camera supports) and the shutter speed to 6 seconds. ISO at 100. Also the street lights are emitting a blob of light too. Anything I can do to reduce all the light?
The blobs result from the bright areas being extremely overexposed. So, quite simply, you need less light coming in. The ways to do that are:
shorter shutter speed (keeping ISO & aperture the same...I'm assuming you're operating in manual mode and can control those). You probably don't want to do that in this case, because it will decrease the "trail" effect.
smaller aperture (keeping shutter & ISO the same). But as you've said you cannot go any more on that.
lower ISO (keeping aperture & shutter the same). I don't know the specifics of this camera but guessing 100 is the lowest? So probably that's out.
use a neutral-density (ND) filter (all other variables the same). Given the above points, I think this is the only way you're going to improve things in this image. If your lens does not accept filters, you could probably rig up something using one of the larger square/rectangular ND filters and some rubber bands or some such. A Polarizing filter might help some; not so much because of the polarizing effect but because they also generally decrease the amount of light coming in...that is the main issue in this case.
As another poster mentioned, you could possibly change your angle to the cars so that they're not coming directly into your camera, but that obviously changes your composition so that may not be a realistic option depending on what you have in mind.
You definitely want a longer shutter speed than that! If the exposure you are getting at f/8 and ISO 100 is correct at 6secs then that tells me you're in a 'bright' area - either with the car lights coming directly into your camera, or ambient street/city lighting affecting the metering. I have shot light trails at f/10 (only marginally more than your f/8) and even at ISO 400, still managed a 30 second exposure. This was on a bridge looking down at the traffic. I would recommend that you either move somewhere a lot darker, or as previously mentioned hold an ND filter in front of your lens whilst taking the picture :-)
I think that the large blob is due to two factors:
Lens diffraction. When a lens is stopped down, hard contrasts will cause diffraction (spreading the light) when going through the aperture. This is normal for any wave that passes through a narrow opening (and in this case the light behaves like waves). The lines of light around the lamp posts are probably caused by diffraction (though they are typically shaped like a pointy star - the number of points depending on the number of blades in the aperture)
Overexposure. When the photosites on the sensor becomes oversaturated they will bleed over, causing the nearby photosites to be overexposed as well. On the low-res image you have posted, it is difficult to tell if this is the case, but to me it could look a bit like it.
I think your image is being altered by a factor not mentioned here, as it's not a photography technical issue: the speed of cars.
We all know that exposure is amount of light for a given time period. With moving sources of light like these, they emit an almost fixed amount of light, but as they are moving, the light exposes a different part of the composition.
The speed of the vehicles, distance from camera and the direction of movement relative to the camera affect how long a single source of light "remains" in the same spot.
In short: The vehicles coming towards the camera, in the far part of the highway are moving too slow for you to achieve the desired picture. The fact that this is also the most distant visible part of the highway makes the movement even slower relative to the frame (of the picture). It seems to me that you are framing a transition zone from a slow moving traffic to fast one (I'm guessing here). If this is the case, cars are closer to each other in that part of the road, so effectively, you have more sources of light in that part of the picture.
Based on this, I would suggest that other way of altering the image you are capturing is to take the picture at a time when traffic is a little more fluent, so they would be moving faster or at a more constant speed, thus exposing less time that part of the composition where the blob occurs. This will also yield longer trails with shorter exposure times.
I definitively agree with the ND filter option, as with all other alternatives to reduce exposure, but, as considering that the lower right corner of the image seems to be (almost) correctly exposed, I would also suggest the use of a ND graduated filter. It will take a whole lot of experimentation, but it actually may help. This kind of filter is used in Landscape photography to balance a brighter sky on top of a darker mountain, river, valley, etc.
There are alternative techniques to using a ND graduated filter, one of them is called the magic cloth, which consists in blocking part of the scene to control exposure, usually by placing a small curtain in front of the lens and sliding it progressively out of the way as the long exposure takes place. http://www.alexwisephotography.net/blog/2012/02/02/the-magic-cloth-technique-diy-graduated-neutral-density-filter/
You may consider as well to try HDR, Pseudo HDR or Multi exposure stacking. Some refferences: http://www.nathangriffin.com/technical/Graduated_ND_Filter_vs_HDR.html