I am given that $\frac{dx}{dt}=8t\cos(t)$ and $\frac{dy}{dt}=8t\sin(t)$. I tried solving for the arclength from $t=0$ to $t=1.$
Method 1: $$\text{Arclength} = \int_{0}^{1} \sqrt{\left(\frac{dx}{dt}\right)^2+\left(\frac{dy}{dt}\right)^2} dx = 4.$$
Method 2:
$$\text{Arclength} = \int_{0}^{1} \sqrt{1+\left(\frac{dy}{dx}\right)^2} dx.$$ However, when I solve using method 2, I get $1.22619,$ when the answer should be $4.$ What is causing this difference?
Your second formula applies when you see $y$ as a function of $x$; you don't say how you found $dy/dx$.
Playing a bit loose with differentials, we have $$ \frac{dy}{dx}=\frac{\frac{dy}{dt}}{\frac{dx}{dt}}=\frac{8t\sin t}{8t\cos t}=\tan t. $$ Then $$ \sqrt{1+\left(\frac{dy}{dx} \right)^2}\,dx=\sqrt{1+\tan ^2 t}\ \,dx=\frac1{\cos t}\,dx =\frac1{\cos t}\,8t\,cos t\,dt=8t\,dt. $$ So your second integral is (now the limits are on $t$, note that we don't easily know the limits on $x$) $$ \int_0^18t\,dt = 4. $$